Analysts anticipated the Reserve Bank of India to maintain its hawkish stance on rates, with no relief in sight, as brokerages express concerns about a potential pre-election rise in food prices.
Aditi Nayar, Chief Economist and Head of Research and Outreach Programs at ICRA Ltd., mentioned that the increase in foodgrain prices due to an erratic monsoon has influenced the overall cost of food in October. However, she noted that the elevated prices of certain vegetables, such as onions, might be offset to some extent by the customary seasonal decline in many other vegetables, providing a degree of relief.
Nayar anticipates that the Reserve Bank of India will uphold a hawkish stance during the policy meeting on December 8, maintaining unchanged rates. She foresees a potential rate cut around August 2024, beginning with a modest reduction ranging from 50 to 75 basis points.
India’s primary retail price inflation hit a four-month low of 4.9 percent in October, down from 5 percent the previous month. The decline in food inflation to 6.2 percent was driven by reduced inflation in categories like meat, fish, milk, milk products, and vegetables. However, excluding vegetables, the food Consumer Price Index (CPI) reached a seven-month high of 6.9 percent in September due to a surge in the prices of cereals and pulses. The Core CPI also decreased to a post-Covid low of 4.3 percent, indicating a broad deceleration. Furthermore, core CPI, excluding commodities, dropped to 4.1 percent.
RBI Governor Shaktikanta Das has issued a warning, expressing concern that headline inflation could endure for a more extended period than initially anticipated. This caution stems from a significant decline in the sowing areas for oilseeds and pulses, posing a potential risk of diminished crop output and elevated prices.
Motilal Oswal Securities suggests that headline inflation has reached its lowest point. The brokerage predicts inflation to increase to 5.5-6 percent in November-December 2023, stabilizing around 5.2 percent in the fourth quarter of FY24. As a result, they do not anticipate any relaxation in the RBI’s monetary policy in the upcoming month or subsequent months.
Barclays observes that overall inflation is well-managed, attributed to a stable INR, controllable energy costs, and a tax policy countering fuel price fluctuations. Despite strong economic growth and sustained demand potentially introducing some inflationary pressure, they predict that headline inflation (both CPI and WPI) will remain within manageable levels. However, they acknowledge short-term uncertainties arising from the volatility in vegetable prices.