RBI in a bind amid weak growth, surging inflation; may not hike rates till Q1 FY23: Report

PTI, Jun 29, 2021, 4:45 PM IST

Mumbai: The Reserve Bank of India is “in a bind”, given the present situation of inflation heating to above the mandated band and weakening growth, a British brokerage said on Tuesday.
The central bank may hike the repo rate only by the first quarter of next fiscal (April-June 2022) and continue to maintain the accommodative stance in the interim, Barclays’ chief India economist Rahul Bajoria said in a note.

It can be noted that after responding with deep rate cuts initially, the RBI has limited itself to using non-conventional tools to help the growth process in the economy. However, with the surge in inflation lately – the headline number came at 6.3 per cent for May – there have been questions over the tolerance of the central bank.

“Weakening growth prospects and surging inflation place the RBI in a bind. Given this backdrop, we expect the central bank to maintain its accommodative stance, and to continue to rely on the government’s supply-side measures to reign in price pressures, while at the same time confirming its commitment to anchoring medium-term inflation expectations,” Bajoria said.

The start of policy normalisation will remain contingent on a sustained growth recovery, evidence of which is unlikely to be visible before the end of the current fiscal year, he added.

Ineffectiveness of the government’s supply-side measures, an un-anchoring of inflation expectations leading to a wage-price spiral, and a return of pricing power are some of the key triggers that could force the RBI into rate action earlier than expected, he said.

The brokerage expects inflation to be at 5.4 per cent for FY22, higher than the previous fiscal’s level and attributed the present surge in the price rise situation to global commodity prices.

“India’s inflation is being driven by non-domestic factors, limiting policy options and squeezing profit margins,” Bajoria said, adding that even if these pressures recede, margin normalisation may keep CPI (Consumer Price Index) inflation elevated and sticky going forward.

The increase in commodity prices is having a direct effect across key sub-components of the CPI, the brokerage said, adding that the increase in food prices over the past two to three quarters has been driven by non-perishables, mainly pulses and vegetable oils, both of which are heavily influenced by global prices.

Similarly, among the components of core CPI, clothing, footwear and industrial products are showing evidence of rising imported price pressures, it noted.

Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.

Top News

AI cameras installed in K’taka Assembly to record arrival, exit time of MLAs, duration of presence

SC to consider setting up bench to hear pleas against passage of laws as money bills to circumvent RS

Kerala man stuck inside hospital lift for two days rescued, three employees suspended

Karnataka to strengthen law to ensure those involved in female foeticide don’t get bail easily

Disability rights groups hit out at Yuvraj, Harbhajan, Raina for ‘mocking’ disabled people in video

Karnataka govt. accuses Centre of adopting ‘step-motherly attitude’ towards State on AIIMS issue

Lord Jagannath’s ‘Bahuda Yatra’ begins, chariot pulling at 4 pm

Related Articles More

Nifty hits fresh record high in early trade; Sensex climbs 290 points

Govt may introduce insurance laws amendment bill in Budget session

Trading activity to hinge on Q1 results, global trends in holiday-shortened week: Analysts

Softbank exits Paytm at loss of around USD 150 mn

Direct tax mop-up rises 20 pc to Rs 5.74 lakh cr on higher corporate advance tax


Poisoning – Prevention

Mulbagal Dosa Vasavi Food Point

Donald Trump

Elephant attack

Anant Ambani Wedding

Latest Additions

Democracy being murdered in broad daylight: Cong slams BJP over violence in Tripura

AI cameras installed in K’taka Assembly to record arrival, exit time of MLAs, duration of presence

Heavy rains: Holiday declared for 4 taluks in Hassan for July 16

SC to consider setting up bench to hear pleas against passage of laws as money bills to circumvent RS

Bantwal: Private bus falls into slushy paddy field

Thanks for visiting Udayavani

You seem to have an Ad Blocker on.
To continue reading, please turn it off or whitelist Udayavani.