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Somewhere relief – sometime calamity, this proverb seems to be true in the case of inflation. In fact, on the one hand, while retail inflation has come down to 7.04 percent in May, on the other hand, wholesale inflation has come down to a new record level. According to the data released on Tuesday, the wholesale inflation rate reached 15.88 per cent in May. Meanwhile, other reports including rating agency Fitch have said that the Reserve Bank of India (RBI) will keep monetary policy tight.
Retail inflation will reach eight percent
It is worth noting that retail inflation had reached an eight-year high in April, but the reduction in excise duty by the central government softened the prices of fuel and food and its impact on retail inflation. However, this figure is still above the Reserve Bank of India’s target range of 2 to 6 per cent. In a report released on Tuesday by research firm Nomura, it has been estimated that in the coming months, retail inflation in the country may reach the level of eight percent.
Repo rate possible to increase by 35 basis points
The report said that given the continuing depreciation of the Indian currency rupee against the dollar and the continuing rise in crude oil prices, retail inflation is likely to remain elevated. In this, economists have expressed hope that the Reserve Bank of India will continue to tighten monetary policy to rein in rising prices. Chief Economist Aditi Nair said that we estimate that the MPC (Monetary Policy Committee) may increase the policy rate by 35 bps and 25 bps respectively in the next two policy reviews. ,
Double whammy likely in June
Economists expect inflation to remain high over the next few months as the diminishing base effect has given it a statistical increase. Crude oil prices have risen by around $10 a barrel after the government cut excise duty on the fuel. If oil companies link this increase with domestic prices, inflation will accelerate further. Nair said the double whammy of the rise in crude oil prices and the depreciation of the rupee will hit the CPI inflation data for June 2022.
This claim was made in Fitch’s report
Fitch Ratings said on Tuesday that the Reserve Bank may increase the policy interest rates to 5.9 percent by December 2022. In its update on the Global Economic Outlook, Fitch said that India’s economy is facing a deteriorating external environment, rising commodity prices and tighter global monetary policy. Due to all this we now expect the RBI to remain unchanged at 5.9 per cent by December 2022 and 6.15 per cent by the end of 2023 and 2024. Significantly, the RBI has recently increased the repo rate by 50 basis points to 4.9 percent. The central bank has increased the repo rate by 0.90 percent, increasing it twice in 35 days.