Hike rates

RBI unlikely to raise rates until August report

Although retail inflation hit 6.01% in January and is expected to remain elevated through April, a foreign brokerage report expects RBI to leave key rates unchanged through the first half of 2022. Swiss brokerage UBS Securities India sees policy change only from the second half where the Monetary Policy Committee (MPC) may propose a 50 basis point hike in the second half from August policy.

Official data released on Monday showed retail inflation hit a seven-month high in January at 6.01%, but lower than the previous high of 6.26% in June 2021.

Wholesale inflation remained in double digits at 12.96%.

The government has also revised CPI inflation for December 2021 upwards to 5.66 from 5.59%.

Reserve Bank Governor Shaktikanta Das said the rise in inflation was mainly due to statistical reasons, especially in the third quarter of FY22, and the same base effect will play out in different ways In the coming months.

Das had said that the RBI had already taken into account the high inflation figures in its recent fortnightly monetary policy, and that retail price inflation in January above 6% “should not surprise or create alarm. “.

RBI expects retail price inflation to soften to 4.5% in the next financial year, while projecting it at 5.3% for 2021-22 and on that basis it left all key rates unchanged and maintained its accommodating stance.

Tanvee Gupta-Jain, chief economist at UBS Securities India, said the latest figures are in line with expectations and the rise was largely due to an unfavorable base effect and continued supply-side constraints.

Core inflation remained stable at 6% versus 6.1% the previous month, reflecting the gradual pass-through of rising input costs to consumers.

She also said price pressure in rural areas is higher at 6.1% than in urban areas, which was slightly lower at 5.9%.

She expects retail inflation to remain elevated in the 5.5-6% range until April, given the massive spike in commodity prices, especially oil, side supply side as well as mounting input cost pressures that will keep inflation higher in the coming months.

Although the CPI will remain high until April 2022, before falling back towards 5% from the June quarter, when oil prices are expected to start falling due to increased supply, she expects expect the MPC to keep the repo rate unchanged through the first half of FY23, before delivering an initial policy hike in August and a cumulative 50 basis point hike in the second half.

She said UBS expects that over the next two to three months supply is likely to remain constrained and that the macroeconomic backdrop, given China’s stimulus, will remain favorable and that an impact significant drop in crude prices is visible over the next 6 to 12 months.


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