Inflation to cross 8% by March; policy actions soon: Economists

NEW DELHI: Inflation is likely to vault over 8 per cent by the fiscal-end and the current trend might shove for policy actions as early as January, economists said.

"If the current sequential uptrend is maintained, the Wholesale Price Index appears likely to cross 8 per cent year-over-year by March," Citi economist Rohini Malkani said in a note today.

In its October policy review, the Reserve Bank raised its inflation projection to 6.5 per cent with an upward bias from 5 per cent at the end of fiscal 2009-10.

The wholesale price-based inflation spiked to 4.78 per cent in November from 1.34 per cent in October.

Food inflation, according to the weekly data announced earlier, had shot up by 19.04 per cent during November recording the sharpest increase in the decade.

"The inflation trajectory is likely to show much higher inflation rates in the next 6 months ... we expect WPI inflation to rise to 8 per cent y-o-y by March," said Sonal Varma, Vice President, India Economist at Nomura.

She said policy rate hiking cycle might start in January and that she has pencilled in a hike of Cash Reserve Ratio, statutory deposits banks have to keep with RBI, before that.

"We expect a cumulative 125 bps of hikes to each of the CRR, repo (rate at which RBI lends to banks) and reverse repo rate (at which RBI borrows from banks) by end-2010," she said.

Citi's Malkani, too, said she expects 125 basis points tightening in 2010 for now.