Declining Core Inflation Limits Need For More Rate Hikes By RBI: S&P Ahead Of MPC Decision

In November and December, retail inflation based on the Consumer Price Index (CPI) showed some signs of moderation. CPI fell below the RBI's upper tolerance level of 6 per cent

The RBI has raised the lending rate by 225 basis points since May last year.

Ahead of the RBI Monetary Policy Committee’s decision on Wednesday, US-based credit rating agency S&P Global Ratings said that a 6.25 per cent repo rate limits the need for further increase, reported PTI. The global rating agency on Tuesday said that the core inflation in India has been declining. 

S&P Global Ratings said, “In India, core inflation has been elevated for longer; however, it eased sequentially in the second half of 2022. An already elevated 6.25 per cent policy rate limits the need for further increases.”

RBI has been trying to contain sky-high inflation caused by external factors, including global supply chain disruption, and the Russia-Ukraine war. The central bank has raised the lending rate by 225 basis points since May last year. 

On Monday, the six-member RBI panel started its three-day monetary policy review. The RBI is battling to ensure that retail inflation is under 4 per cent with a margin of 2 per cent. However, the inflation was above 6 per cent for three consecutive quarters beginning January 2022. 

In November and December, retail inflation based on the Consumer Price Index (CPI) showed some signs of moderation. CPI fell below the RBI's upper tolerance level of 6 per cent.
 
In November 2022, the retail inflation came below the 6 per cent level and declined further in December at 5.72 per cent.

Last week the International Monetary Fund (IMF) said that inflation in India is expected to come down from 6.8 per cent in the current fiscal year ending March 31 to 5 per cent in the next fiscal, and then drop further to 4 per cent in 2024. 

The RBI has also said that with retail inflation falling below the 6 per cent upper band in recent months, the first milestone of India's monetary policy committee is passed. 

The RBI, January's monthly bulletin said, “turning to early developments in 2023, macroeconomic stability is getting further entrenched. Recent data arrivals indicate that the first milestone of monetary policy is being passed – bringing inflation into the tolerance band. The objective during 2023 is to tether inflation therein so that it aligns with the target by 2024 – the second milestone.”