The Reserve Bank is likely to hike benchmark lending rates by 25 basis points in its bi-monthly policy next month to bring down inflation within the central bank’s comfort zone, DBS Group Research said on Monday.
To contain the rising prices, the RBI has hiked interest rates by 250 basis points since May last year.
In an online session on ‘Growth resilience and sticky inflation’, DBS Group Research executive director and senior economist Radhika Rao said the RBI may hike interest rates by 25 basis points in April and maintain a hawkish bias as retail inflation is still high.
Consumer prices in India have eased as the country’s CPI inflation in February 2023 slightly slowed to 6.44%. However, the retail inflation, based on the Consumer Price Index (CPI), remains beyond the RBI’s tolerance limit of 6% for the second consecutive month. The retail inflation had stood at 6.52% in January 2023.
Rao, however, said inflation caused by supply-side constraints cannot be dealt with by monetary policy alone and is not enough to tackle inflation.
“Weather conditions are important for farm output. The local weather agency has said in the next 3 months you could see high temperatures… The upcoming monsoon in June-July would be a crucial period. Weather…would be important for inflation and farm output as the sector employs about 45% of the population,” news agency PTI quoted Rao as saying.
She said inflation is still on the higher end of the target.
“We do think supply shocks are playing out in the food segment. Core inflation is quite sticky. We do think the upcoming meeting in April is going to be another 25 basis points hike, but thereafter we think the monetary policy committee is going to be divided on the path ahead because supply shock by nature cannot be dealt with by monetary policy alone.
“We have to see support from the government as well in terms of administrative measures of some fiscal support,” Rao added.
The next monetary policy of the RBI is scheduled on April 6, 2023.
India’s gross domestic product growth slowed to a three-quarter low of 4.4% in the October-December period, mainly due to a contraction in manufacturing and low private consumption expenditure.
The Indian economy grew 6.3% in the July-September quarter and 13.2% in the April-June quarter of the current fiscal.
The latest rate hike of 25 basis points in February took the benchmark policy rate to 6.50%.
The decision was announced by RBI Governor Shaktikanta Das. MPC decision was by 4 out of 6 majority.
Amid volatile global developments, the Indian economy remains resilient, Das had said.
To remain focused on the withdrawal of accommodation. Monetary policy was confronted by unprecedented contraction of economic activity followed by a surge in global inflation, he had said.
(With PTI inputs)
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