World Economic outlook - india inflation rate forecast 2012-2013 : Investment banking major Morgan Stanley has revised downwards its India’s economic growth forecast for 2012 to 7.4 per cent. Morgan Stanley reduced its forecast for India’s gross domestic product growth for 2012 to 7.4 per cent from 7.8 per cent amid high inflation and weak global capital markets environment.
The Reserve Bank of India (RBI) has cut CRR by 0.5%, from 6% to 5.5%, resulting in an injection of Rs 320 billion in the banking system. This has been done to ease liquidity conditions, mitigate downside risks to growth and anchor inflationary expectations based on RBI`s commitment to low and stable inflation. The Repo rate has been kept unchanged at 8.5%.
RBI cautions that fall in WPI inflation from 9.1% in November to 7.5% in December was largely due to fall in inflation of primary food and non-food articles. However, food inflation fall was mainly due to highly seasonal vegetable prices coming off sharply. Inflation in protein items continues to remain in double-digits. Excluding vegetable prices, even food inflation has only marginally moderated from 8% in November to 7.1% in December 2011 vis-Ã -vis a fall from 8.5% in November to 0.7% in December for overall food inflation.
It warns that fuel inflation, which remains high at 14.9% due to high crude prices and fall in rupee would go up once administered prices of diesel, kerosene, cooking gas and coal are hiked. It worries about the core inflation (non-food manufacturing) being at elevated levels at 7.7% in December (a marginal fall from 8.1% in October and 7.9% in November). International commodity prices and fall in rupee are identified as two factors impacting it the most.``
``In this context, a sharp reversal of rupee from 54 levels to a dollar to 50 levels in January 2012, if sustained, would provide a relief to core inflation and allow RBI more leeway in looking at easing rates.
A cut in GDP forecast would normally lead to a downward revision of inflation projection too, but RBI maintains its inflation target at 7% by March 2012. This is explained due to a sharp fall in rupee feeding into core inflation and delaying adjustment of inflation to slower growth as well as considerable suppressed inflation due to administered prices of coal and petro-products being far lower than global prices. Any upward adjustment in these prices (a reform much needed from prudent macro-economic perspective to reduce government`s fiscal deficit and also balance demand-supply from consumption perspective) will lead to immediate upward tick in observed inflation.``
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