“Overall, at this point of time, with the supply outlook appearing favourable and several high frequency indicators pointing to resilience of the recovery in the first quarter (April-June) of 2022-23, our current assessment is that inflation may ease gradually in the second half of 2022-23, precluding the chances of a hard landing in India," said Das at a conference on Saturday.
India's retail inflation held above the top end of the central bank’s tolerance limit for the sixth straight month in June, a development that may prompt it to raise interest rates further to cool prices.
Consumer price index (CPI) inflation in June remained little changed at 7.01% from 7.04% in the previous month despite a raft of government measures, including export curbs on food items and excise duty cuts on fuels, to drive down prices.
Central banks worldwide are grappling with worse-than-anticipated inflation driven by supply-chain disruptions, surging commodity prices, and fall-out from the Russian invasion of Ukraine.
In India, the pace of price gains has stayed above the RBI’s 6% upper tolerance level since the start of the year, forcing it to raise rates by 90 basis points in the last two months.
Economists do not see big rate hikes from the RBI after the June inflation data. “June CPI inflation has come in line with expectations, indicating that the peak of inflation is behind. Further, with sharp deceleration in commodity prices and trend in high-frequency food prices showing a continued moderation, we expect July CPI inflation to track below 7%," said economists at Morgan Stanley in a note.
Banks have been raising lending rates since RBI's steep rate hikes in the last two months. The changes in policy repo rate make a significant impact on both lending and deposits interest rates which means that a higher repo rate results in rising interest rates for various loans, thus an increase in one's monthly instalments or EMIs.
Therefore, the current expectations of not much big rate hikes and less aggressive action from the central bank may not lead to steep rise in the lending rates as was expected earlier during the year.
