New Delhi: Indian economy face risk of inflation due to higher minimum support prices (MSP) for agricultural items, populist spending in the run-up to the 2019 general elections and strengthening of global crude oil prices, industry body Assocham has said in its pre-credit policy review letter to the RBI.
Assocham secretary general D. S. Rawat in a letter to RBI has said though consumer price index (CPI) showed a decline in retail inflation to 4.44 per cent in February from 5.1 per cent in the previous month, “the key risks to the base case CPI inflation forecast include higher Minimum Support Prices (MSPs), global crude oil prices strengthening further and populist spending in the run-up to 2019 general election”.
This would leave “very little leeway for the RBI to cut rates in this monetary policy and hence we in Assocham expect the RBI to keep the key interest rates unchanged.....”
It said the chamber appreciates RBI for maintaining status quo in the previous bi-monthly monetary policy statement and keeping the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.0 per cent.
Consequently, the reverse repo rate under the LAF remained at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent, it said.
Lower inflation in fuel and food helped ease India’s wholesale inflation in February to a seven month low of 2.48 per cent. Wholesale Price Inflation (WPI) was 2.84 last month and 5.51 per cent in February 2017, said Assocham.
The rate of inflation based on WPI Food Index consisting of ‘Food Articles’ from Primary Articles group and ‘Food Product’ from manufactured products group decreased from 1.65 per cent in January, 2018 to 0.07 per cent in February, 2018, it added.
