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India's falling rupee pushes retail inflation to five-month high in June

Reuters  |  NEW DELHI 

By Kumar

NEW (Reuters) - India's accelerated to a five-month high in June, driven by a weakening rupee as well as surging oil prices, bolstering the chance the central will again raise interest rates in coming months.

The of (RBI) last month raised its benchmark rate for the first time since 2014, by 25 basis points to 6.25 percent, and revised up its inflation projection for October-March to 4.7 percent from 4.4 percent earlier.

The RBI's next policy review is on Aug. 1.

In June, consumer prices rose 5.00 percent from a year earlier, compared with a 4.87 percent increase in May, the statistics department said on Thursday.

The median forecast from economists polled by was for June inflation of 5.30 percent, well above May's provisional 4.87 percent. The forecasts ranged from 4.60 percent to 6.00 percent.

Indranil Pan, of IDFC Bank, said rupee depreciation was likely to push up prices of inputs for manufacturers, which would be reflected in higher retail prices, and the central would be guided by inflationary concerns.

"We are expecting the RBI to raise the policy rate two more times in the current financial year," he said.

June was the eighth straight month in which inflation was higher than the RBI's medium-term target of 4 percent.

The rupee has weakened nearly 7 percent this year, hitting a record low against the dollar last month. This has pushed up prices of imported items ranging from petroleum products, commodities, electronic and engineering items.

The benchmark Brent has surged near 20 percent this year and had crossed $80 a barrel in May, the highest level since 2014.

imports about 80 percent of its In 2018, of petrol have climbed 9.4 percent and diesel by 14.3 percent in the capital,

However, annual retail food inflation, which contributes about half of the index, was down 2.91 percent, compared with 3.10 percent the previous month, amid forecasts for normal rains this year.

The core annual consumer price inflation was around 6.3 percent in June, firming up slightly from 6.1 percent the previous month, according to three analysts.

Narendra Modi's decision to raise procurement prices ahead of elections, estimated to cost 150 billion rupees ($2.2 billion) to the government, could push up prices of foodgrains in coming months.

The expects India's economic growth to rebound to 7.4 percent in the fiscal year that began in April, from an estimated 6.7 percent the previous fiscal year.

Separately, industrial output grew 3.2 percent in May from a year earlier, compared with economists forecast of 5.2 percent, government data showed.

($1 = 68.6000 Indian rupees)

(Additional reporting by Suvashree Dey Choudhury and Tanvi Mehta; Editing by Richard Borsuk and Robert Birsel)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, July 12 2018. 18:22 IST