New Delhi, Oct. 15: Rising fuel prices yanked overall inflation up to a 10-month high of 7.81 per cent in September, weakening the case for an interest rate cut by the Reserve Bank of India this month.
Inflation, as measured by wholesale price index (WPI), was 7.55 per cent in August.
The government had last month raised diesel prices by over Rs 5 a litre, fuelling a sharp rise in fuel price inflation to 11.88 per cent in September from 8.32 per cent in August.
Food inflation declined to 7.86 per cent during the month from 9.14 per cent in August. Food articles have a 14.3 per cent share in the WPI basket.
The RBI will meet on October 30 to consider its interest rate policy amid demands from industry for rate cuts.
“The RBI can hold on interest rates in the next policy review while taking measures to ease liquidity through open- market operations and a cut in the cash reserve ratio — the amount the central bank requires lenders to hold as reserves,” said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy.
The central bank cut the cash reserve ratio in September by 25 basis points to 4.5 per cent in a move to inject about Rs 17,000 crore into the banking system.
C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, expressed confidence that inflation would decline going forward, but the current situation was not favourable for a rate cut.
“When inflation continues to rise, it becomes a very difficult situation... I am only saying that the circumstances are not too favourable (for rate cut),” Rangarajan said.