India's February retail inflation eases, raises chances of rate hike

Vendors wait for customers at their respective shops at a retail market in Kolkata

By Manoj Kumar and Aftab Ahmed

NEW DELHI (Reuters) - India's annual retail inflation eased to 6.44% in February, helped by a fall in the price of some food items, but remained above the central bank's target, reinforcing expectations for a further interest rate hike at its meeting next month.

The February reading was higher than the 6.35% forecast by economists in a Reuters poll, and was above the upper band of the Reserve Bank of India's (RBI) 2%-6% target, data released by the National Statistics Office on Monday showed.

Annual retail inflation was 6.52% in January.

Economists said food inflation could remain high for the next few months, with El Nino conditions predicted in 2023, while sticky core inflation, excluding volatile food and energy prices, provided little room to absorb higher food prices.

"This print strengthens the case for another 25 bps rate hike by the RBI in the next policy," said Sakshi Gupta, economist at private lender HDFC Bank, adding further rate hikes post April could not be ruled out now.

The RBI has raised its benchmark repo rate by 250 basis points (bps) since May last year.

Graphic: Retail inflation stays above target range-

The RBI's Monetary Policy Committee will meet from April 3-6.

Food prices, which account for nearly 40% of the CPI basket, rose 5.95% in February, compared with 6.0% in January, as edible oil and vegetable prices eased.

Indian consumers have not benefited much from a fall in international crude oil prices as the state-run oil companies have kept retail petrol and diesel prices on hold to partly recover their earlier losses.

Fuel retail prices rose 9.90% year-on-year in February from 10.84% in the previous month, the data showed.

Excluding the volatile food and energy components, core inflation rose between 6.05% and 6.12% last month, according to three economists' estimates, compared with between 6.09% and 6.10% in January.

Graphic: India inflation -

A Reuters poll suggested retail inflation would not reach the RBI's medium-term target of 4% by the end of next year, and that could force the central bank to continue its aggressive tightening cycle, hurting economic growth.

India, the world's fifth-largest economy, is expected to grow around 6.5% annually in the next financial year starting in April, compared with an estimated 7% in the current financial year.

(Reporting by Aftab Ahmed and Manoj Kumar; editing by Jason Neely, Sharon Singleton and Alex Richardson)