Even as the latest inflation data for September shows it rising to a five-month high, experts said the RBI’s Monetary Policy Committee (MPC) needs to continue raising its rates. is expected and may increase by up to 60 basis points (bps). December 2022. He, however, added that the October inflation data next month will give a clearer picture on the quantum of possible rate hikes.
India’s retail inflation rose to a five-month high of 7.41 per cent in September, from 7 per cent in the previous month, amid a jump in food prices. Food inflation rose to 8.60 per cent in September this year from 7.62 per cent in August.
This is the ninth month that consumer price index (CPI)-based inflation has remained above the RBI’s upper tolerance limit of 6 per cent, and has risen despite the central bank’s efforts to contain it. Retail inflation was 7.04 percent in May, 7.01 percent in June, 6.71 percent in July, 7 percent in August and now 7.41 percent in September.
Sunil Sinha, Chief Economist India Ratings and Research said, “Given the recent rise in wheat prices and low paddy sowing in the Gangetic plain, India Ratings and Research believes that cereal prices are likely to decline in the near term. This simply means that food inflation, apart from sustained service sector and imported inflation, will continue to put pressure on retail inflation.
Sinha said Ind-Ra expects the RBI to increase policy rates by 50-60 basis points in the current rate hike cycle, so that the final rate of interest remains in the range of 6.25-6.50 per cent. “Since the impact of monetary policy is felt with a lag of 9-12 months, future rate hikes will be data dependent.”
RBI’s rate-setting panel has hiked 140 basis points in four policy reviews since May 2022. One basis point is equal to one hundredth of a percentage.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, said, “Consumer Price Index (CPI)-based inflation was in line with our expectations at 7.41 per cent in September at 7.35 per cent. Food prices continue to rise, especially in cereals and vegetables. Low Food prices will continue to rise due to acreage and unseasonal rains.
Rakshit said the September inflation print should keep the RBI for a 35-bps hike in December, with inflation above 6 per cent by at least February 2023 and gradually reducing to a range of 4.5-5.5 per cent in FY2024. Will be
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said inflation is a major challenge before the RBI, “The MPC will have to continue to hike rates by 50 bp in the next meeting and this will adversely affect the economic growth which is already there. Is showing signs of slowdown. Industrial production declines by 0.8 per cent in August is a sign of slowdown in the economy. A slowing global economy is another major impediment to growth.”
ICRA Chief Economist Aditi Nair said another rate hike is certain in the December 2022 MPC review, after an uncomfortable inflation print of 7.4 per cent for September 2022.
“The quantum of the next rate hike will be determined by how much decline in the inflation print in October 2022 as well as the strength of GDP growth for Q2 FY2023,” Nair said.
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