March inflation rise dashes rate cut hopes

Wholesale price inflation hit a three-month high in March raising fears in India Inc that the Reserve Bank of India (RBI) will keep interest rates high.

Official figures released on Tuesday showed that the wholesale inflation rose 5.7 per cent as food and fuel prices spiked. Retail inflation in March inched up to 8.31 per cent from 8.03 per in February mainly on account of a rise in fruit and vegetable prices.

This will be a worry for RBI, which aims to bring down retail inflation to 6 per cent by January 2016. After raising lending rates three times since last September, RBI left its policy repo rate unchanged at 8 per cent this month.

A sharper cooling in vegetable prices in the past three months had raised hopes of breaking out of that spell. But recent unseasonal hail and heavy rains in parts of the country have damaged crops and driven up food prices again.

Inflation in food items was 9.9 per cent in March against 8.12 per cent in the previous month.

India Inc wants the government to tackle supply-side constraints for arresting food prices instead of RBI going for a tight policy.

Sidharth Birla, president, Federation of Indian Chambers of Commerce and Industry, said: "The Central bank must take a more nuanced stand on its reading of the growth-inflation dynamics as we are fast losing ground with regard to performance of the industrial sector."

Confederation of India director general Chandrajit Banerjee said: "It would be unfortunate if RBI decides to address supply-side created inflation through demand constriction by using interest rate as a tool."

In association with Mail Today