WPI inflation comes in higher at 7.55%; RBI gets little headroom to act on June 18

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WPI inflation comes in higher at 7.55%
The most eagerly awaited figure before the RBI announces is monetary policy review on June 18, 2012 is out. The Wholesale Price Inflation for the month of May 2012 has come in at 7.55%, which is higher then the April figure of 7.23%, giving lesser headroom for the Reserve Bank of India to cut repo rates and the cash reserve ratio (CRR) aggressively on June 18, 2012.

Core inflation for May 2012 has come in at 4.99%. The annual rate of inflation, based on monthly WPI, stood at 7.55% (Provisional) for the month of May, 2012 (over May, 2011) as compared to 7.23% (Provisional) for the previous month and 9.56% during the corresponding month of the previous year. Build up inflation in the financial year so far was 1.80% compared to a build up of 1.94% in the corresponding period of the previous year.

The March inflation figure too has been revised upwards to 7.69% from 6.89% aggravating inflationary conditions further.

Analysts were expecting an inflation of around 7.4%. The WPI inflation data is last of the data that the Reserve Bank of India is likely to look to, before it meets on June 18, 2012 to decide on a repo rate cut.

With today's WPI inflation coming in higher then expected, the RBI is expected to get lesser headroom to cut repo rates, which lead to lowering of interest rates in the economy.

Analysts and bankers have been increasingly calling for a repo rate cut, as growth in the economy has been dropping sharply. However, the RBI has been reluctant to cut interest rates given the high inflation. The RBI's case for not easing its monetary policy now becomes even stronger, given todays inflation figures.


Read more about: repo rates, inflation
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