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Inflation Standstill – Rate Cuts Far Off

September 5, 2008

The rising curve of Inflation for now is moving sideways. For the week ending 23 Aug ’08, headline (wholesale price index, WPI) inflation was 12.34%, in line with market expectations.The decline in the inflation rate this week has been due to w-o-w softening of primary, in particular, vegetable prices. Egg, meat and cereal prices also declined. Within manufactured products, edible oil prices fell.

With inflation softening over the past two weeks and the change of guard at the RBI, expectations have been raised that a rate cut could come soon. However, we do not think so. In over view the RBI should maintain its policy stance until inflation corrects significantly and remains low for a while.

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