March inflation outlook closer to RBI target

Bengaluru: India's inflation is seen climbing to within touching distance of the Reserve Bank of India's 4 per cent medium-term target in March, driven by higher food costs, a Reuters poll found, backing policymakers' decision last week to move to a defacto tightening bias.

Having sunk to its lowest level for at least five years in January, consumer price inflation is expected to have risen to 3.98 per cent last month from February's 3.65 per cent, according to the median forecast of 30 economists.

The March inflation rate is due to be released at 1200 GMT on April 12.

"Inflation is likely to pick up in March, backing the central bank's stance to keep rates on hold last week," wrote Radhika Rao, economist at DBS Bank.

"In March, cereal and pulses eased but perishables were up. Adverse base effects will underpin the fuel and commodity related components, though the sharp rupee gains will help cap imported price pressures."

Signaling its worries about inflation, the Reserve Bank of India surprised markets last week in raising the secondary reverse repo rate by 25 basis points to 6.00 per cent. It kept the key policy repo rate unchanged at 6.25 per cent.

India's central bank raised its inflation projections for the 2017/18 fiscal year starting April, expecting the index to average 4.5 per cent in the first half and 5.0 per cent in the second, taking it above the RBI's medium-term target.

Such an uptick in prices could force the RBI, which ended a long easing cycle in February by changing its policy stance to neutral from accommodative, to raise interest rates for the first time in over three years.

That is in contrast to a recent Reuters poll in which economists indicated borrowing costs would more likely fall than rise.

According to that poll, any cut would come towards the end of the year, by which time there would be a clear indication of whether India had a good monsoon, crucial in a country where most of the population depends on agriculture and which will keep food inflation in check.

Wholesale price inflation is expected to have slowed last month, to 5.98 percent from 6.55 percent in February, according to Tuesday's poll.

Industrial output is seen rising 1.3 per cent in February from a year ago compared to 2.7 per cent in January, the poll found.