Hike rates

RBI may be forced to raise rates sooner as March inflation climbs to 6.95%

RBI may be forced to hike rates sooner after latest inflation spike

The Reserve Bank of India could be forced to act faster on policy tightening after data showed retail price inflation rose sharply to nearly 7% in March, and the fallout from the war of Ukraine pushing energy rates higher should add to already mounting price pressures. .

Indeed, after repeated messages that the central bank was more focused on growth and that inflation was transitory, the Reserve Bank of India at its recent meeting reluctantly shifted its policy focus towards containing the inflation.

This shift in central bank guidance came even before the latest data, which showed retail inflation, calculated based on the consumer price index (CPI), held above the upper end of the RBI’s 2-6% target range for the third consecutive month. .

While March’s inflation figure of 6.95% is significantly higher than February’s 6.07% annual rate, it does not yet reflect the full impact of the sharp rise in global crude prices since the Russia invaded Ukraine on February 24 as Indian oil retailers only began raising fuel prices in late March, suggesting there will be no letting up in price hikes for consumers of so early.

Indeed, fuel price revisions resumed on March 22, after being maintained for more than four months. Petrol and diesel prices rose by Rs 10 per litre, respectively, after 14 tariff reviews over the past 21 days.

This suggests that the pass-through of these fuel price hikes is not yet reflected in other costs, including food, transportation, etc.

The RBI left interest rates unchanged at its last meeting. Still, the central bank may need to act sooner, given that the sharp rise in inflation does not reflect a broader impact on other commodity and food prices from the pass-through of fuel price hikes. in April.

What is likely to weigh on the RBI is that the US Federal Reserve is set to adopt an even more aggressive rate hike path, with inflation data due to be released expected to reflect the biggest hike in 16 years there. low.

The latest data was also well above expectations of 6.35%, according to a Reuters poll of economists. While none of the economists in the Reuters survey had predicted inflation would fall below 6%, the highest forecast was 6.5%.

Calls for the RBI to act on rates had increased in recent weeks, and the latest data would only heighten criticism that the central bank was behind the curve of inflation control.