DBS research on Wednesday said that it has revised India’s inflation to 5.2 per cent for FY24 as compared to 4.8 per cent earlier due to concerns in certain areas including perishables like vegetables, pulses and foodgrains.
The Reserve Bank of India (RBI) has projected retail inflation reading at 5.1 per cent for the ongoing fiscal.
DBS said the overall situation is expected to be manageable due to adequate reservoir and groundwater levels which will influence the winter crop.
In addition to this, pre-emptive supply-side price management steps including redistribution of inter-state supplies, stepping up imports or export bans to boost domestic stocks, supporting better crop yields, containing hoarders will also help.
In the latest Monetary Policy Report, the RBI estimated that adverse weather could lead to upward pressure on food, pushing up headline inflation by 50 bps above the baseline forecast.
DBS in its report authored by Radhika Rao, senior economist, said the strong inflation prints are aligned with the RBI policy committee’s cautious stance on inflation.
“We expect the official stance to be vigilant on inflation but view the recent spike as seasonal and temporary, thereby not warranting a policy response,” the report adds.
The report says that onus to arrest supply-driven inflation will fall on non-rate measures. “The latest inflation number coupled with hawkish signals from the US Fed validates our view that policy easing is likely to be pushed back to 2024.”
Policy commentary will retain its hawkish colour by maintaining ‘withdrawal of accommodation’ stance and keep rates on hold to underscore ‘higher for longer’ bias, suggests DBS report.
“In the near-term, the real rate buffer could narrow as inflation picksup again.”
The report also says, “We delay the start of the rate-cutting cycle by a quarter. Come 2024, we expect 100 bps of cuts from April, frontrunning the US Fed’s easing by a quarter, based on our baseline assumptions.”
Source Name : Economic Times