MSP hike, likely populist measures key risks to inflation

Key risks to the retail inflation include 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, the ASSOCHAM has said in its pre-credit policy review letter to the Reserve Bank of India (RBI).
 ASSOCHAM Secretary General Mr D S Rawat’s letter to the RBI Governor, Dr Urjit Patel has said though consumer price index (CPI) showed a decline in retail inflation to 4.44% in February from 5.1% 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 Reserve Bank of India (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.
 The next meeting of the Monetary Policy Committee of the RBI is scheduled for April 4 and 5.  
 Lower inflation in fuel and food helped ease India’s wholesale inflation in February to a seven month low of 2.48%. Wholesale Price Inflation (WPI) was 2.84% last month and 5.51% in February 2017. 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% in January, 2018 to 0.07% in February, 2018.

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