MUMBAI (Reuters) – The Reserve Bank of India may raise interest rates by another 50 basis points this month after data showed inflation rose further above the central bank’s tolerance limit in August, analysts said.
India’s retail inflation rate rose to 7.0% in August from 6.71% in the previous month, data released on Monday showed. The August reading was a tad above the 6.9% expected by economists polled by Reuters. Higher food inflation contributed to the increase in headline rate.
“From a policy perspective, another month of above-target inflation clears the path for further monetary tightening at the next MPC (Monetary Policy Committee) meeting on 30 September,” said Rahul Bajoria, chief India economist at Barclays Bank.
The relatively resilient growth outlook, coupled with robust credit growth and sticky core inflation, will keep the RBI’s focus firmly on managing inflation, Bajoria said in a note.
Core CPI rose 6.17% in August, per Barclays’ calculations.
“It’s clear that inflation remains uncomfortably high and (the August) data will do little to ease the concerns of several MPC members, who continue to strike a relatively hawkish tone,” Shilan Shah, senior India economist at Capital Economics, said in a note.
Shah expects RBI to switch to 25 basis points hikes in the two meetings that follow the September meet, taking the repo rate to 6.40% in the first quarter of next year.
The uneven monsoon rainfall has led to food prices trending higher in the first two weeks of September, IDFC First Bank pointed out. As a result, the preliminary estimate for September CPI inflation is tracking an “uncomfortable” 7.3%, it said. The bank expects inflation to average 6.7% for this fiscal year.
(Reporting by Nimesh Vora)
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