The Reserve Bank of India (RBI) has estimated that the benchmark lending rates will be hiked in April by 25 basis points in its bi–monthly policy next month to bring down inflation within the Central Bank's comfort zone. To contain hiked interest rate points by 250 basis points since May last year, the latest rate hike for this year in January point 25 bases have reached 6.52 % against 5.72% in December.
In an online session on ‘Growth resilience and sticky inflation,’ the DBS group Research Executive Director and Senior Economist Radhika Rao said the RBI might hike its interest rates by 25 basis points in April. Rao, however, said the inflation caused by the supply–side constraints could not be dealt with by monetary policy and was not enough to tackle the inflation cycle.
"Weather conditions are important for farm output. The local weather agency has said in the next three 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 percent of the population," Rao said.
She also added that inflation is on the higher side of the target, which must be tackled, “We do think supply shocks are playing out in the food segment. Core inflation is quite sticky. We do believe the upcoming meeting in April is going to be another 25-basis points hike.
Still, after that, we believe the monetary policy committee will be divided on the path ahead because supply shock by nature cannot be dealt with by monetary policy alone.
Rao said growth in the December quarter decelerated mainly due to the high base. However, PMI data, auto sales, and GST collection show buoyancy in 2023. But savings have come down. For March 2023 quarter, she kept a point that "we are about in the lowest 4 percent year–on–year growth."
India’s gross domestic product (GDP) growth slowed by a three-quarter low of 4.4 percent in October – December, mainly due to a contraction in manufacturing and low private consumption expenditure. The Indian economy grew 6.3 percent in the July-September quarter and 13.2 percent in the April-June quarter of the current fiscal.
"We do think supply shocks are playing out in the food segment. Core inflation is quite sticky. We do believe the upcoming meeting in April is going to be another 25-basis points hike. Still, after that, we think the monetary policy committee will be divided on the path ahead because supply shock by nature cannot be dealt with by monetary policy alone.
The following monetary policy of the RBI is scheduled on April 6 "we have to see support from the government as well in terms of administrative measures of some fiscal support," Rao.
Elevated inflation prints and relatively high resilient frequency indicators which are promoted the rate hike as it is an April meeting, said Teresa John, an economist at Nirmal Bang Equities Pvt, adding that high accurate interest rates may weigh on the economy with a lag, which consequently raises the possibility of rate cuts in December 2023 and way beyond.
The headline consumer prices have fallen below 7% from September last year but unexpectedly surged above the RBI's 6% target ceiling in January economists have now raised the price–growth outlook to 6.1% from 5.65% in this quarter, with various annual forecasts raised slightly to 6.6%.
Inflation forecasts have been revised due to the ongoing momentum in cereal inflation, elevated global commodity price, and sticky core inflation, according to Sakshi Gupta, the principal economist at HDFC Bank Ltd.
The recent RBI policy meeting, which began on February 6, comes at a time when major central banks around the globe have the Herculean task of taming red-hot inflation without damaging growth amid fears of at least a mild recession.
Investors are tracking macroeconomic data from major economies, including the US and India, closely for more clarity on the end of the current cycle of aggressive hikes in benchmark interest rates.
Many economists believe the recent inflation readings leave room for the RBI to pause its rate hikes for now. Consumer inflation returned to sub-six percent levels in November last year after ten quarters. The RBI aims to keep inflation within two percent of its target of four percent on each side.
The central bank's rate-deciding committee is not likely to announce liquidity-boosting measures on February 8, according to the poll. 8. The RBI has hiked the repo rate by 225 basis points in five installments since May 2022.
This will be a major turn - over for the Indian Economy and its citizens becasue RBI has decided to reperesent a hike in interest rates by 250 basis points it was declared in a research published by the DBS research Group. RBI is all set to change its interest rates in the month of April.
Share This Post On
0 comments
Leave a comment
You need to login to leave a comment. Log-in
