As the Reserve Bank of India gears up for its next Monetary Policy Committee meeting in April, experts weigh in if the central bank will announce another interest rate hike following February’s CPI inflation print of 6.4% – the second straight month of retail inflation persisting way above RBI’s tolerance zone. The core inflation number came in at 6.3%, remaining concerningly sticky, while both numbers are above the RBI’s upper tolerance of 6%.
According to Rajani Sinha, Chief Economist, CareEdge, the possibility of another 25-bps rate hike by RBI in the April meet cannot be ruled out due to elevated core inflation, which has remained sticky at 6.3%. She added that it may take time before the moderation in core inflation in response to the monetary tightening so far and fizzling out of pent-up demand.
Average FY23 inflation way above 5-year average
The current consumer inflation rates, which have averaged at 6.8% so far in FY23, are 200 bps higher than the 5-year average witnessed between FY17-22. Yashwin Bangera, Sr VP, Knight Frank India, said that elevated consumer inflation widens the scope of the RBI to hike the key policy rate in its next MPC meeting. However, he cautioned that further rate hikes could lead to a double whammy to domestic economic growth.
On a positive note, Nikhil Gupta, Chief Economist, MOFSL Group, suggested that the worst of inflation may be behind us. He expects headline inflation to fall below 6% in March and further down towards 5% in the coming months. Gupta predicted that a 25 bps hike in April by the RBI
What happens next? What will soften the blow from inflation
Dipti Deshpande, Principal Economist, CRISIL
Lastly, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, shared that the RBI will remain hawkish in the April policy due to spiked inflation prints over 6% in January-February, along with sticky core inflation rates above 6%. Rakshit also expects a 25 bps repo rate hike in the April policy.