Ineffectiveness of the government’s supply-side measures, an un-anchoring of inflation expectations leading to a wage-price spiral, and a return of pricing power are some of the key triggers that could force the RBI into rate action earlier than expected, he said.
Activists from Indian Youth Congress protest against fuel price hike, in New Delhi. File pic/AFP
The Reserve Bank of India is “in a bind”, given the present situation of inflation heating to above the mandated band and weakening growth, a British brokerage said on Tuesday. It may hike the repo rate only by the first quarter of next fiscal (April-June 2022) and continue to maintain the accommodative stance in the interim, Barclays’ chief India economist Rahul Bajoria said in a note.
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Ineffectiveness of the government’s supply-side measures, an un-anchoring of inflation expectations leading to a wage-price spiral, and a return of pricing power are some of the key triggers that could force the RBI into rate action earlier than expected, he said. Retail inflation based on consumer price index (CPI) had spiked to 6.3 per cent in May.
The brokerage expects inflation to be at 5.4 per cent for FY22, higher than the previous fiscal’s level and attributed the present surge in the price rise situation to global commodity prices. “India’s inflation is being driven by non-domestic factors, limiting policy options and squeezing profit margins,” Bajoria said, adding that even if these pressures recede, margin normalisation may keep CPI (Consumer Price Index) inflation elevated and sticky going forward.
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