RBI likely to hold rates, inflation could rise to 4.5-4.8 pc: Report
New Delhi, April 7
India's headline CPI could rise to between 4.5 and 4.8 per cent from a base case of about 4 per cent, and RBI's April policy is likely to keep rate changes on hold in a cautious tone, a report said on Tuesday.
The report from Yes Bank said GDP growth is expected to moderate to about 7 per cent with downside risks if the US-Iran war persists.
"Growth has remained resilient so far, supported by domestic demand - both private consumption demand and government's capital expenditure," the bank said.
Inflationary risks stem from higher input costs for manufacturers, a possible El Niño that could push up food prices, higher fertiliser costs if passed on to farmers.
Further, a prolonged crisis may also force the government to increase retail prices of petrol and diesel, the bank warned.
"RBI can remain on a pause to support growth as inflation will not threaten the 6 per cent barrier and will mostly be supply driven. Generally, a supply shock to inflation can be seen through if the HH inflation expectations do not rise significantly," the bank said.
Due to heightened uncertainty, the bank said, "there is no burning hurry for the RBI to move to tighten monetary policy, also as USD/INR appears to be now settling into a narrow range."
The report said that the rate cutting cycle is over as inflation trends higher, INR depreciation pressure bites and global central banks signal caution on inflation and rate cycle.
"However, a rate hike is also not imminent as India stepped into the current crisis from an advantageous position of low inflation-high growth," it added.
Fiscal policy has moved in to share the burden by absorbing some of the oil price impact by keeping retail prices of petrol and diesel unaffected.
— IANS
Reader Comments
Good analysis. The government absorbing some oil price impact is a relief for common people. Petrol prices directly affect everything from veggies to bus fare. Hope this pause continues.
Inflation at 4.5-4.8% still sounds manageable, but the report mentions "downside risks". If US-Iran tensions escalate, our 7% growth forecast could be too optimistic. Global factors are always a wild card for our economy.
As someone running a small manufacturing unit, higher input costs are a real concern. RBI's pause is welcome, but the government needs to look at easing other compliance burdens to keep the growth engine running.
The report says the rate cutting cycle is over. That's a bit disappointing for home loan seekers like me. Was hoping for some relief before finalizing my apartment purchase. Guess I'll have to wait and watch.
While the cautious stance is understandable, I respectfully think the RBI should be more proactive on inflation expectations. Once prices of essentials rise in the market, it's very hard to bring them down, regardless of the cause being 'supply-driven'.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.