Ahead of RBI Meeting S&P says Indian Inflation Likely Above RBI’s 2022 Upper Tolerance Limit

Headline Consumer Price Inflation (CPI) is likely to remain outside the RBI’s upper tolerance limit of 6 per cent until the end of 2022 S&P Global Ratings said in quarterly economic update for Asia-Pacific Monday. The Reserve Bank of India meets on Friday with consensus split between expecting the RBI to hike by 35 or 50bps. With the US dollar on a rampage the resumption of currency weakness may move the needle to higher hikes. The rupee depreciated over the past week with the hawkish the Fed pivot.

RBI

The Reserve Bank of India Monetary Policy Committee (MPC) raised its key repo rate by 50 bps to 5.4% during its August meeting, the third-rate hike in a row. Last month they surprised markets which had forecast a 35-bps rate hike, as policymakers stepped up efforts to bring down inflation which has stayed above the upper end of the central bank’s target this year.

The decision followed a 50-bps hike in June, bringing the rate to level not seen since September 2019. The central bank maintained its inflation forecast for FY 2023 at 6.7% and its economic growth at 7.2%. The annual inflation eased slightly to 7.01% in June of 2022, amid surging food prices. Still above the RBI’s target range of 2-6% for the sixth straight month. The central bank also raised both the standing deposit facility (SDF) rate and the marginal standing facility (MSF) rate and the bank rate by 50 bps to 5.15% and 5.65%, respectively.

S&P Global Ratings estimates policy rates to reach at 5.9 per cent during the year. At present it is 5.4 per cent.

India Interest Rate

Indian Inflation

S&P Global Ratings expects headline Consumer Price Inflation (CPI) to remain outside the RBI’s upper tolerance limit of 6 per cent until the end of 2022. It rose from 6.71% in July, above market expectations of 6.9%.

“That’s amid substantial weather-induced wheat and rice price increases as well as sticky core inflation. And food inflation may rise again,” Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings

Retail inflation based on CPI rose to 7 per cent in August and for the eighth successive month the rate is above 6 per cent against the targeted inflation rate range of 2 to 6 per cent with a median rate of 4 per cent.

India Inflation Rate
  • Prices increased faster for food (7.62% vs 6.75% in July), with meat and fish (206.4%), oils and fats (192.4%), spices (193.6%), vegetables (186.6%) and fruits (172.9%) recording the biggest increases.
  • Prices of housing (4.06% vs 3.9%); and education (5.51% vs 5.02%) also accelerated while a slowdown was seen in fuel and light (10.78% vs 11.8%); transportation & communication (5.2% vs 5.55%) and health (5.43% vs 5.45%).
  • Compared to the previous month, consumer prices were up 0.52%.

Source: RBI, S&P Global

From The TradersCommunity Research Desk