After data revealed that inflation increased further over the central bank’s tolerance limit in August, economists predicted that the Reserve Bank of India will increase interest rates by another 50 basis points this month.
According to figures released on Monday, India’s retail inflation rate increased to 7.0% in August from 6.71% the previous month. The August reading was somewhat higher than the 6.9% analysts surveyed reports had predicted. The increase in the headline rate was influenced by higher food inflation.
Rahul Bajoria, senior economist for India at Barclays Bank, stated that “from a policy standpoint, another month of above-target inflation clears the route for additional monetary tightening at the next MPC (Monetary Policy Committee) meeting on September 30.”
The RBI will continue to place a strong emphasis on managing inflation due to the relatively optimistic economic outlook, strong credit expansion, and sticky core inflation, according to a report by Bajoria.
According to figures by Barclays, Core CPI increased 6.17% in August.
Shilan Shah, senior India economist at Capital Economics, wrote in a note that “it’s obvious that inflation remains uncomfortably high and (the August) figures will do little to assuage the anxieties of some MPC members, who continue to strike a very hawkish tone.”
In the two meetings that come after the one in September, according to Shah, the RBI will move to 25 basis point increases, bringing the repo rate to 6.40% in the first quarter of 2019.
According to IDFC First Bank, the unpredictability of the monsoon rains has caused a tendency toward increased food costs in the first two weeks of September. Because of this, it claimed, the preliminary estimate of CPI inflation for September is tracking at a “uncomfortable” 7.3%. For this fiscal year, the bank anticipates an average inflation rate of 6.7%.
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