CPI Inflation at 6.44%: RBI may hike repo rate by 25 bps in April, say economists

The RBI has hiked the repo rate by 250 bps since May 2022 to fight the price rise.

Persistently high retail inflation in recent months may force the Reserve Bank of India's rate-setting panel to go for another hike in its next policy review, top economists said on March 13.

India's headline retail inflation rate came in at 6.44 percent in February, lower than January's three-month high of 6.52 percent, data from the Ministry of Statistics and Programme Implementation showed on March 13. However, inflation remains above the RBI's upper limit of 6 percent.

This, economists said, may force the Monetary Policy Committee (MPC) to increase the repo rate by 25 basis points (bps) in the April review.

One basis point is one-hundredth of a percentage point.

The RBI has hiked the repo rate by 250 bps since May 2022 to fight the price rise.

Inflation above 6 percent

The February inflation figure is in line with the expectations of economists polled by Moneycontrol. Economists saw inflation easing to 6.4 percent.

Retail inflation has now been above the RBI’s medium-term target of 4 percent for 41 months in a row.

Another rate hike coming?

"We believe that it (inflation) will remain above 6 percent in March too," Madan Sabnavis, Chief Economist at Bank of Baroda, said.

"There is a strong case for expecting RBI to increase repo rate in the April meeting by 25 bps," he added.

"Given two consecutive CPI inflation prints above 6 percent, the MPC may go in for another rate hike, although the decision is likely to be non-unanimous based on the minutes of the last review," noted Aditi Nayar, chief economist at ICRA.

The MPC is scheduled to next meet on April 3-6.

Economists also expect the central bank to remain vigilant.

"We continue to expect RBI to hike repo rate by another 25 bps in April while keeping its stance unchanged," Yuvika Singhal, an economist at QuantEco Research, said.

According to Suvodeep Rakshit, senior economist at Kotak Institutional Equities, the RBI will "remain hawkish" in April due to inflation returning to 6-percent plus territory in January and February "along with core inflation remaining sticky above 6 percent."

Calculations done by Moneycontrol showed core inflation was unchanged at 6.1 percent in February.

"With core inflation still high, we cannot rule out the possibility of another 25-bps rate hike by RBI in the April meet," said Rajani Sinha, chief economist at CareEdge.

Sinha expects CPI inflation to average 5.1 percent in 2023-24 as against the RBI's forecast of 5.3 percent.

Stress in US banking system

Economists added that the central bank will also keep an eye on stress in the US banking system after the failure of Silicon Valley Bank.

"The central bank is also likely to keep a close eye on potential stress in the US banking system and stand ready to be nimble and proactive if the need arises," QuantEco Research's Singhal said.

SVB has been shut down by regulators and its assets have been seized, the Federal Deposit Insurance Corporation (FDIC) said on March 10.

The closure order was issued by the California Department of Financial Protection and Innovation, which also named the FDIC as the receiver.