Consumer prices, which surpassed the Reserve Bank of India’s inflation target for the second straight month, may have fueled fears of a policy rate hike, but many economists expect the central bank to show its accommodative stance to support the economic recovery will maintain.

They cited the easing of commodity prices from their peaks and the RBI’s high inflation forecast for the current quarter to insist that a policy rate hike seems a long way off at this point.

The Reserve Bank has kept its key rate unchanged at 4% since May 2020 and has continued with its accommodative policy to ensure sufficient liquidity to support growth and sustainable economic recovery.

“For now, we see the RBI MPC (Monetary Policy Committee) put all rates on hold in the April 8 policy,” said Astha Gudwani, India economist at Bank of America Securities. The brokerage expects the central bank to remain accommodative even if inflation remains high, he said.

While retail inflation according to the Consumer Price Index (CPI) in January and February crossed the RBI’s target range of 2-6% by 6.01% and 6.07% respectively, they are not far from the central bank’s revised projections. .

The RBI, in its February statement, forecast inflation of 5.7% for the current quarter and 5.3% for 2021-22. In its June policy statement, it had projected 5.1% retail inflation for 2021-22 and 5.3% for the fourth quarter.

Even if the Russian invasion of Ukraine and subsequent sanctions against Russia have a direct impact on the global energy market, the global price of crude oil (Brent) has fallen more than 20% in the past week from a peak of $127 a barrel. on March 7. to around $100 a barrel on Tuesday is seen as a reassuring factor for Indian monetary policymakers. Prices of iron ore and aluminum imported from India fell 3-6% over the week.

If the price of crude oil were to rise, a 10% change in India’s crude oil basket could impact CPI inflation by as much as 20 basis points, according to research firm QuantEco Research. But some leeway to adjust excise taxes could slow the pass-through of the increased world prices to pump up prices, it said.

Food inflation is also expected to remain a source of comfort on the CPI front, with prospects of robust rabi arrivals, supported by strong rabi seeding acreage (70 million hectares), adequate buffer stocks and government supply-side interventions for the case of edible oil and legumes, according to Acuite Ratings and Research.

RBI Deputy Governor Michael Patra had hinted last week at continuing the growth-promoting policy.

“While fiscal consolidation is underway, there is still some stimulus in the economy that will last through 2022-23, as fiscal impulse estimates suggest,” Patra had said in a speech. “While the implications of the geopolitical situation are being assessed and will be factored into our projections, it is reasonable to treat it as a supply shock at this stage of monetary policy.”

Experts said the global rise in food prices may have limited impact on inflation at home. “The global rise in food prices is likely to have a very limited impact on India, given the closed food markets and the ability to apply price controls,” said Rahul Bajoria, India’s chief economist at Barclays Capital. “We think that retail prices can be shielded by fiscal measures. Subsidies for fertilizers can be increased, excise taxes on petrol can be lowered and the government can consider providing subsidized cooking oil in the meantime.”

This post repo rate: RBI saw rates hold even as retail prices hit top inflation target

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