Crude Prices, Political Uncertainty set to drag Economic Growth to 7.5%, SAY S EXPERT

Inflation is likely to peak to around 13% over the next two months before it gradually moderating to around 8.5-9% by end of this fiscal, economists have said. he country’s economic growth too would moderate below earlier forecast of 8% to around the 7.5-7.8% level in FY09, they said. “I expect inflation to peak to around 12.5-13% in the next two months before beginning to decline. But double-digit inflation will continue at least for the next 4-5 months,’’ YES Bank chief economist Shubhada Rao said here.

Global fuel prices present the most important concern to policy makers, the economists said. “Inflation will be contingent upon oil prices,’’ Crisil director and principal economist D K Joshi said. “Prices of products such as aviation turbine fuel and naphtha have shot up 40% year-on-year,’’ Enam Securities chief economist Sachidanand Shukla said. While inflation would peak at around 12.5-13%, Joshi expected the yearly average inflation rate to be around the 8.5-9% mark. This figure, again, is much higher than the 5.5% projected by some economists earlier. Rao, however, pegged the average at a much higher 9-9.5%.

Economic growth would be below the 8%-mark, “maybe even below the 7.5%-mark’’, Bank of Baroda chief economist Rupa Rege Nitsure said. But other economists such as Joshi and Enam’s Shukla felt that it would be around 7.8%. “Growth will definitely slow down given the rate hikes, but I don’t expect it to fall sharply. It will be around the 7.8% mark,’’ Shukla said. YES Bank’s Rao said that even pessimists were forecasting a 7% growth. “Amid the present global turbulence and domestic headwinds, 7% is still very healthy,’’ she said.

Food prices are expected to ease in the next few months. Much would, however, depend upon the monsoon, the economists said, but with a good one forecast, they expect a healthy kharif crop which would help in pushing down food prices. On whether the RBI would further hike the repo rate and cash reserve ratio (CRR), most economists expect a 0.25-0.5% hike in the repo but were divided over its timing. A CRR hike would, however, depend upon prevailing liquidity conditions, they said. While some expected the RBI to hike rates in July, others felt that the RBI might do so later. However, all are agreed that inflation would continue to occupy centre-stage throughout this fiscal.