August inflation number could be 'unpleasant', says SBI Research report

SBI Research Report says 'it's less hopeful' of any rate cut by the central bank this fiscal.

The report, written by the state-owned lender's chief economist Soumya Kanti Ghosh, says India's central bank could succeed in inflation targeting by "reaching the 4 per cent target over a particular business cycle rather than for a particular date such as two year ahead".

"We expect August inflation numbers to be elevated at around 7% or even higher and if the base effect is the primary reason, inflation could only come down to below 4% possibly beyond December,” says the report attributed to SBI Research and titled 'August Inflation Numbers Could Be Unpleasant: Rate Cut Hopes Fade?'

"However, it looks difficult to believe that supply disruptions would normalise against the huge upsurge in pandemic in rural areas and this now poses an upside risk to inflation numbers. We are thus less hopeful of any rate cut in current fiscal / at best 25 bps as February MPC meeting would consider December inflation only,” the report says, referring to the Reserve Bank of India's Monetary Policy Committee.

Ratings agency Fitch on Tuesday sharply lowered its forecast for India's gross domestic product (GDP) growth for the current fiscal 2020-21 (FY21) and now expects the country's GDP to contract 10.5 per cent versus its earlier estimate of 5 per cent contraction in this period.

“The severe fall in activity has damaged household and corporate incomes and balance sheets, amid limited fiscal support. A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers. Furthermore, high inflation has added strains to household income,” Fitch said.