India's headline inflation for August, which sharply rose to 7.55% on-year against the estimated 7% rise, will make it more difficult for the Reserve Bank of India to cut interest rates, says Credit Agricole economist Dariusz Kowalczyk. This comes on the back of Thursday's poor preliminary trade report for August and highlights continued tensions in the economy. "Large price pressures are eroding export competitiveness and delaying rate cuts, and poor exports are weighing on growth," he says in a note. The RBI has a tough decision to make at Monday's rate-setting meeting -- it would be illogical to cut rates in the face of such high inflation. "On the other hand, latest and expected steps to consolidate public finances -- diesel price hike yesterday -- could be a tempting opportunity for the central bank to offer a vote of confidence to the new finance minister," Kowalczyk adds. He expect no rate cut next week, but a 50-bps easing in October-December quarter is likely.
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