India's High Inflation May Stick For Longer, Rates Likely To Rise Further: Poll

Soaring global commodity prices have kept inflation above the RBI's 6 per cent upper tolerance range all year while

Inflation was set to measure 7.3 per cent and 6.4 per cent in Q3 and Q4 2022, respectively, according to forecasts from the July 4-11 Reuters poll.

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Inflation in India will hold above the top of the Reserve Bank of India’s (RBI’s) tolerance level for at least the rest of 2022, showed a Reuters poll. According to the report, this may compel the central bank to make several more interest rate hikes in the coming months to tame inflation.

One of the later entrants in the current round of global monetary policy tightening, the RBI raised its repo rate by a total of 90 basis points in May and June, but the inflation outlook has deteriorated since an April poll.

Soaring global commodity prices have kept inflation above the RBI's 6 per cent upper tolerance range all year while. So far, the government’s fiscal response to rising costs has been modest.

Inflation was set to measure 7.3 per cent and 6.4 per cent in Q3 and Q4 2022, respectively, according to forecasts from the July 4-11 Reuters poll. In the previous poll, inflation was set to return to the RBI's tolerance band by end-year.

"In India, inflation will prove a lot more stubborn than it will in other parts of the region. Things will get better, but they will get better much faster in other parts of Asia," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

Average inflation this fiscal year was pencilled in at 6.8 per cent according to a survey of 42 economists, a sharp upgrade from 5.5 per cent in the April poll, coming down to 5.2 per cent and 4.7 per cent in the following two years, respectively.

The RBI is expected to further hike the repo rate, currently at 4.90 per cent, by another three-quarters of a percentage point to 5.65 per cent by end-year. That is slightly higher than a separate survey taken in June, which put rates at 5.50 per cent by then.

In the latest poll, over half of the economists, 25 of 48, forecast rates to be at 5.50 per cent or higher by the end of this quarter.

Among those who provided a forecast for the August meeting, more than one-quarter, 10 of 35, expected the RBI to hike by 35 basis points to 5.25 per cent at its meeting next month, while 14 expect a smaller quarter-point hike. Nine said the RBI would raise by 50 basis points, one said 40 and one said 30.

"India would still remain one of the fastest growing economies... but India's growth will be still pretty weak by the standards of what India requires," said Kunal Kundu, economist at Societe Generale.