MUMBAI: The Reserve Bank of India’s out-of-turn move to hike repo rates by 40 basis points could be due to April inflation that may well be above the Central bank’s estimates. Retail inflation, which was at 6.95% in March, could well be close to 7.5% in April, many analysts believe.
“The general consensus is that April inflation would be in the 7.3-7.5% range. Question really is if there could be a major upside surprise to this,” says Sreejith Balasubramanian, India economist at IDFC Mutual Fund.
RBI governor Shakti Kanta Das in his speech on Wednesday said high frequency price indicators for April indicate the persistence of food price pressures. “Simultaneously, the direct impact of the increases in domestic pump prices of petroleum products – beginning the second fortnight of March – is feeding into core inflation prints and is expected to have intensified in April,” he added.
The Ukraine-Russia war has led to supply disruption, resulting in substantial increase in prices of wheat, sunflower oil, as well as crude oil. The RBI governor said spillovers from global wheat shortages are impacting domestic prices, even though supply remains comfortable. “Prices of edible oils may firm up further due to export restrictions by key producing countries and the loss of sunflower oil output due to the war,” Das said in a statement.
Rate hikes show flexibility, to help markets: SBI chief
The surprise rate hike by RBI accompanied with tightening of the cash reserve ratio illustrates the flexibility with which the central bank operates, and the move will support the markets, SBI chairman Dinesh Khara said on Wednesday. Khara, who heads the country’s largest lender which controls over a fifth of the overall assets, termed the decision of the regulator as a “front loaded action”. Earlier in the day, Governor Shaktikanta Das delivered a video message in which he spoke about rate-setting panel having met off-schedule, and announced a 0.40% hike in repo rate and 0.50% increase in the cash reserve ratio.