NEW DELHI : Global banking major BNP Paribas has said inflationary pressure in India will moderate early next year, but will stay above the Reserve Bank’s comfort level of around 5-6 per cent.
“It is not until early 2012 when favourable base effect kicks in that spot inflation should genuinely fall back, but remain well above the RBI’s comfort zone,” BNP Paribas said in its latest issue of ‘Asian Instant Insight’.
The banking major’s projection is at variance with the forecasts made by the government and RBI.
Both the government and the central bank expect inflation to start cooling by the third quarter of this fiscal (October-December).
While RBI has said that overall inflation will moderate to around 7 per cent by March, the government expects it to be around 6.5 per cent by then.
Inflation soared to 13-month high of 9.78 per cent in August. It has been above 9 per cent since December 2010.
“Despite signs of a cooling economy, elevated inflation expectations and upward pressure on administered electricity prices are…likely to retard the desired disinflation process,” BNP Paribas said.
It added, “Despite building downside risks to growth, it is not until early 2012 when base effect from onion and cotton prices kicks in that WPI inflation should realistically fall back towards more comfortable levels but remain well above the RBI’s comfort zone of 5-5.5 per cent.”
RBI has hiked key-policy rates 12 times since March 2010 to drain out excess demand, which many consider could be stoking the inflation.
Corporate India has said that frequent rate hikes, which have led to an increase in the cost of borrowings, are hindering fresh investments and affecting economic growth.
The country’s economic growth was 7.7 per cent in the April-June period, the slowest in six quarters. Growth in industrial production also fell to 21-month low of 3.3 per cent in July.
In the mid-quarterly policy review earlier this month, RBI said that the Rs 3.14 per litre hike in petrol price, announced recently, will further fuel inflation.
It said the current level of high inflation makes it imperative to continue with the anti-inflationary stance and tight monetary policy.