Inflation in India to ‘drop considerably’ by March 2012: Nomura

Monday, 7 November 2011 00:00 -     - {{hitsCtrl.values.hits}}

NEW DELHI: Financial services company Nomura has said inflation in India is likely to “drop considerably” by end of the current fiscal and the Reserve Bank is expected to pause its policy of monetary tightening.

“We share the view with the RBI that inflation will likely drop considerably as we approach March 2012, due to lagged effects of past monetary actions and the recent moderation in commodity prices.

“Further, as growth prospects appear to be weakening ... we expect no further rate hikes by the RBI in the current cycle,” Nomura said in its Asia Economic Alert. RBI has hiked its key policy rates 13 times, totalling 350 basis points, since March 2010 to tame demand and curb inflation. The rate of price rise has been above the 9 per cent mark since December last year.

At its second quarterly review of credit policy last month, RBI projected inflation to moderate from December onwards and touch 7 per cent by end of the financial year.

Economic growth slowed to 7.7 per cent in April-June, lowest in six quarters. Growth in industrial production stood at 4.1 per cent in August.

Experts have blamed the repeated rate hikes, which has led to increase in the cost of borrowing, for slowdown in fresh investments and industrial growth.

In its review, the apex bank said that notwithstanding current rate of inflation the likelihood of a rate action in the December mid-quarter review is relatively low.

“Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted,” RBI had said.

Commenting on RBI’s forward guidance, Nomura said: “This, in our view, is a very strong statement indicating that there will be no rate hikes in December and beyond, so long as inflation moderates as expected”.