NEW DELHI: Repo rate is likely to reach pre-pandemic level of 5.15% from the existing 4.4% by August, says a SBI report. Owing to continuous rise in inflation, the Reserve Bank of India (RBI) will have to raise repo rates in upcoming June and August monetary policies. The report says that even after the hike in repo rate, inflation will take some time to moderate in the country.
According to the report, 59% increase in overall inflation is because of Russia-Ukarine war. “If we also add the impact of input costs particularly on the FMCG sector, thus adding the contribution of personal care and effects, the total impact at all India level comes to 59%, purely because of war, “ it stated.
Even if the war between Russia and Ukraine doesn’t subside soon, it will be worth noting whether the rate hikes by the central bank will help in containing inflation or not, according to SBI. The SBI report concluded that the apex bank must be supported in its attempts to moderate inflation through interest rate hikes as higher interests will be positive for the financial systems as the risks will get repriced. It said RBI may have to use shorter windows to sort out inflationary concerns.
India reported inflation at 7.79 % in April on account of high food and fuel prices. This is the fourth straight month when the rate remained above 6%, upper limit of RBI’s tolerance level.