Rising food and vegetable prices have taken retail inflation for the month of December to its highest level in over 5 years at 7.35 percent. SBI's chief economist Soumya Kanti Ghosh said the current trajectory of India's retail inflation looks bad and in the next month the inflation could be closer to 8 percent.

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“Our concern is that if food inflation doesn’t subside quickly, we may land in a situation of high inflation for the next couple of months at least in the month of June and July and then see it tapering off but in the meanwhile the growth numbers unlikely to be over 5 percent. So we have low growth for the next couple of months and high inflation. And that’s worrisome,” added Ghosh.

“Global food items are rising and if that rises that could lead to an increase in CPI inflation over the next couple of months and protein inflation also works with a lag when food prices tend to rise because given the high vegetable prices there is a tendency of people to shift to pulses and other commodities. So that’s also a matter of concern,” said Ghosh.

“Therefore, we would hope that this trend in increase in food prices doesn’t get broad-based and if it doesn’t get broad-based then we can expect that the inflation could cool off towards the end of this year and to decline to less than 3 percent, but as of now inflation number does look a bit worrisome,” Ghosh added.

On the monetary policy front, Ghosh said, “February and April rate cut is out of the question and if we look into inflation trajectory given that inflation meaningfully declines to below 6 percent after June and July. So I don’t see any rate cut possible in the first half.”

“Rate cut, if anything happens, could possibly happen in the second half. As of now our call is that a maximum of rate cut, if the current trajectory continues, could be between 0 and 25 bps,” he further added.

According to him, scope for further ‘Operation Twist’ looks limited.