The Reserve Bank of India (RBI) is well ahead of its curve in controlling inflation which is at a multi-year high and has led to a 90 basis points increase in the rate in the last two monetary policies. SBI in its latest ecowrap expects the RBI to opt for a hike in interest rates in August and October as inflation continues to peak.
India’s consumer price index (CPI) inflation eased to 7.04% in May after reaching a high of 7.79% in April. inflation Still ahead of RBI’s comfort zone.
In May, the core CPI also declined to 6.09% from 6.07% in April.
SBI said in its research report, there have been observations in recent times that have questioned whether: reserve Bank of India It has been behind the curve in controlling inflation, as reported by PTI.
SBI believes that RBI is far ahead of the curve in controlling inflation and the Fed may borrow a template from RBI to control US inflation which is widespread and threatens to break global financial stability. Is.
Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, author of Ecowrap, said there are expectations that the RBI may be a factor in the rate hike in August (as inflation is likely to cross 7% in June) and even That in October policy as well, and take it to 5.5% by October from pre-pandemic levels.
Furthermore, the report said, “Our peak rate at the end of the cycle now has a high probability of a lower limit of 5.5% and a low probability of moving to 5.75% depending on the inflation trajectory.”
Notably, the estimates are purely data-dependent and subject to revision, the report said.
RBI raised the policy repo rate by 40 basis points in May and by 50 basis points in June. Now, the repo rate has been increased to 4.9% to tackle high inflation.
SBI’s average inflation forecast for FY23 is 6.7%, however, its quarterly inflation figures differ slightly from that of the central bank.
In its June policy, the RBI said in its inflation outlook, “The tense global geopolitical situation and consequently elevated commodity prices provide considerable uncertainty to the outlook for domestic inflation. Restrictions on wheat exports should improve domestic supply.” But there could be an offsetting risk for a heat wave due to a reduction in rabi production. The forecast of a normal southwest monsoon augurs well for the kharif agricultural production and food price outlook.”
Further, RBI said that edible oil prices remain under pressure on unfavorable global supply conditions, despite some recent corrections due to lifting of export restrictions by a major supplier. As a result of the recent reduction in excise duty, domestic retail prices of petroleum products have softened. However, international crude oil prices remain elevated, with further upside risks to domestic pump prices.
Revision in electricity prices also carries upside risk. Preliminary results of the Reserve Bank’s surveys of firms in the manufacturing, services and infrastructure sectors are expected to lead to further input and output price pressures, the RBI said.
Taking these considerations into account and on the assumption of a normal monsoon and average crude oil price (Indian Basket) at $105 a barrel in 2022, RBI projected inflation in 2022-23 at 7.5% with Q1 at 6.7% Is; Q2 at 7.4%; Q3 at 6.2%; and Q4 at 5.8%, risk evenly balanced