New Delhi: SBI Research expects the central bank, the Reserve Bank of India (RBI), to raise policy rates at its June and August meeting by a cumulative 75 basis points.
Beyond August, rate actions could be more balanced and sensible and the terminal repo rate should be between 5.15 and 5.25% by FY23, it said. he declares.
This means that the RBI should not increase the repo rate by more than 1.25% for an additional negative contribution to come into play.
Retail inflation jumped to 7.79% on an annual basis in April 2022, from 6.95% in March 2022, mainly due to food price inflation.
Inflation is now expected to remain above 7% through September, SBI Research said in a report.
“Beyond September, inflation rates could hover between 6.5 and 7.0%. Our inflation forecast for FY23 is 6.5%, given the possibility of a shock extended on food prices,” he said.
The Russian-Ukrainian conflict had a significant impact on the path of inflation.
The latest April inflation print shows that wheat, protein products (chicken in particular), milk, lemon, cooked flour, peppers, refined oil, potato, peppers, kerosene, firewood, gold and LPG contribute substantially to overall inflation.
Interestingly, the inflation of protein products like chicken, mustard oil, etc. eased in April.
However, this could be an aberration, given that April was the month of Navratri and other religious festivals, he added.
Surprisingly, the contribution of gasoline and diesel to headline inflation has been steadily decreasing since October 2021, while the weighted contribution of kerosene and firewood to headline inflation has been steadily increasing.
The significant increase in the weighted contribution of kerosene may reflect the impact of high fuel costs in rural areas. This does not bode well for rural demand.
“The weighted contribution of LPG also increased, reversing a downward trend. This can however be attributed to the commercial use of LPG.”
Furthermore, the report says that the RBI may increase the CRR rate by another 100 basis points, after recently increasing it by 50 basis points.
The RBI can give back to the market at least 3/4 of the Rs 2.6 lakh crore absorbed by the CRR rise, or Rs 1.95 lakh crore, in some form to meet the duration bid.
This would reduce market borrowing to around Rs 12.36 lakh crore for FY23 from the budget estimate of Rs 14.3 lakh crore, the report adds.
Furthermore, the SBI research added that the rupiah’s fall to new lows, with volatility rising above psychological levels of 77, bodes well for a difficult situation, reflecting the turmoil in the wider markets ahead. global scale and the limited choices the central bank has to manage the exchange. rate, even with seemingly comfortable levels of foreign exchange reserves close to $600 billion.
“We don’t expect the rupee to break above the 80 levels and instead show an appreciation bias over time,” he said.