The central bank has kept the policy repo rate unchanged in the last two bi-monthly policy reviews in June and April. The repo rate was hiked by 25 basis points to 6.5% in February. Since then there has been no change.
While the RBI is unlikely to hike rates due to the recent surge in the price of food items, it may turn far more hawkish in its statement related to inflation.
“Vegetable price rise is seasonal and will come down soon. But price rise in cereals can last longer since global prices influence the domestic prices,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
The consumer price index-based inflation, which the RBI monitors for its policy action, rose to 4.81% in June after hitting a 25-month low of 4.25% in May. The headline inflation is estimated to have risen further to around 5.5% in July. The National Statistical Office (NSO) is scheduled to release July CPI-based inflation data on August 14.
Vijayakumar said the single biggest contributor to the spike in retail inflation in July would be tomatoes.
Food items account for 46% weightage in CPI and within this vegetables have 6% weightage. Flooding and unseasonal rains damaged crops and caused rise in prices of many food items. Cereal and pulses prices will continue to face pressure for some more time, he added.
Another key factor likely to dominate the MPC action would be the US Federal Reserve’s recent decision to hike rates. Last month, the Fed hiked its key interest rate by 25 basis points to the highest in 22 years.
While the RBI is unlikely to hike policy rates in line with the US Fed, it may signal that a pivot to rate cuts remains distant,” said Aditya Damani, Founder & CEO, Credit Fair.
Published 08 August 2023, 04:35 IST