The Reserve Bank of India (RBI) would be forced to signal neutral policy at the Monetary Policy Committee review meeting in April as average consumer inflation is expected to remain firm at 5.4% over the course of the month. 23, S&P Global Ratings said in a note.
The RBI is likely to raise the repo rate by at least 50 to 75 basis points in FY2023, and another 50 basis points in FY2024, the rating agency said. .
Separately, Moody’s Analytics said that if the US Federal Reserve accelerates its path to policy normalization, the RBI may have no choice but to start tightening policy as inflation remains elevated.
Rising inflation will prompt the RBI to signal a neutral stance at its April review meeting, followed by a normalization of the policy rate corridor (the spread between the repo rate and the reverse repo). This will imply an increase in the reverse-repo rate, S&P said.
High inflation will dampen private consumption – the largest component of demand – and the last to recover from the pandemic, the rating agency said.
“The government could end up using fiscal policy more aggressively than it planned in its budget for fiscal year 2023. This will help those most affected by the pandemic until growth led by investment revives the labor market and private consumption demand becomes self-sufficient,” S&P said.
India’s retail inflation rate or CPI hit an eight-month high in February – staying above the RBI’s targeted 6% upper limit for the second month in a row – at 6.07 %.
Central banks around the world are watching the US Federal Reserve, and the RBI is likely to opt for policy tightening if the US Fed accelerates its path to policy normalization. However, it will be necessary to “thread the needle carefully; moving too fast or too slow would be detrimental.
After exports from the Asia-Pacific region continued to increase due to the acceleration in global trade, the region’s exports may face disruptions due to the obstruction of some manufacturing sites following the increase of Covid-19 cases in China, according to Moody’s Analytics report.
Exports from Asia-Pacific countries continued to rise in the first months of this year, and India, South Korea and Malaysia benefited from strong demand and price increases for such as palm oil, crude oil and food grains, semiconductors and their components. , automobiles and auto parts.
However, the coming months could see some disruption to the region’s export base, Moody’s Analytics. “The increase in the number of Covid-19 cases in China is causing local, albeit temporary, disruptions in some manufacturing sites and transportation corridors. China’s technology hub, Shenzhen, suffered brief closures of manufacturing plants and port facilities last week,” he said.