Retail inflation of India in November breached the Reserve Bank of India’s medium-term target of four per cent, which could put pressure on it to raise policy rates in 2018.
Annual inflation of 4.88 per cent last month was the steepest level in 15 months, government data showed on Tuesday, up from 3.58 per cent in October.
Last week, the RBI held rates unchanged, despite having faced some pressure to cut rates to aid growth. The central bank’s increased concern about inflation has prompted it to hold rates since a trim in August.
India’s inflation outlook has deteriorated in recent months, driven by rises in the prices of food and fuel products. The RBI has raised its inflation projection to between 4.3 percent and 4.7 percent for the six months ending in March 2018.
The central bank took advantage of an extraordinary period of low inflation, including a slump in food and energy prices, to cut rates by a total of 200 basis points from January 2015 until August this year, when it last cut the repo rate by 25 basis points.
The RBI will hold its next policy review in February.
Analysts said inflation was likely to remain above four per cent in 2018, dashing hopes for any rate cut.
“The scope for any rate cut this fiscal (year) is completely ruled out,” said Sunil Sinha, an economist at India Ratings.
“I do not see much of change in RBI’s stance in the next six months.”
With a surge in prices of fruit and vegetables, annual retail food inflation climbed to 4.42 per cent in November from 1.90 per cent the previous month, while fuel inflation quickened to 7.92 per cent from 6.36 per cent, driven by rising global prices of crude oil.
Finance Minister Arun Jaitley, who will present his last annual budget in February, ahead of general elections in 2019, is worried that rising inflation could end the current rate-cut cycle, officials have said.
In Asia, China’s annual consumer inflation slowed to 1.7 per cent in November and in South Korea to 1.3 per cent, the lowest in 11 months.
India’s economic growth rebounded in the three months ended in September, halting a five-quarter slide.
