Year-on-year retail inflation in India accelerated to 7.01% in June from 6.26% a year earlier, remaining above the central bank’s 2-6% tolerance band for a sixth straight month, government data showed on Tuesday. Analysts had forecast year-on-year inflation in June at 7.03%, up from 7.04% the previous month.
Inflationary risks to Indian inflation appear to be easing as global commodity prices correct on concerns of a global slowdown and as domestic food price growth begins to weaken. With today’s print, Q1FY23E CPI inflation undershoots RBI’s inflation forecast of 7.5% by 22 basis points. We see incremental upside risks to CPI inflation fading, with FY23E CPI at 6.5% with risks balanced against earlier expectations of upside risks of 20-30 basis points.
“We see the Monetary Policy Committee (MPC) taking comfort from these data and expecting a further 75bp increase in the repo rate in FY23E, with a 25-35bp increase during the August 2022 meeting.Told by UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI.
CPI inflation remained broadly stable around 7%, bringing the 1Q23 average to 7.3%, marginally below RBI’s projection of 7.5%. However, inflation is expected to remain elevated and only gradually decline for the rest of the year.Commodity prices provide some relief, gains will be limited due to weakening rupee. We expect the MPC to continue to favor raising interest rates, especially as global monetary tightening continues. We expect 85-110 bps of additional rate hikes in the next few sessions to take the repo rate to 5.75-6% by the end of FY23.
