As India’s headline inflation continues to be sticky at around 6 percent and the central bank also keeping its eye on the rupee stability along with uncertainty in the US markets and Fed impending decision, the RBI is likely to for one more rate hike in its next monetary policy committee meeting in April, members of the Economic Advisory Council (EAC) to the Prime Minister said.
“Underlining the fact that inflation in India is uncomfortably sticky. We have had sticky core inflation at around 6% for a long time. We still are to understand why core inflation is sticky. As of now it will be a closed call for RBI in its next MPC meet. It will be prudent to do one more rate hike for RBI. India should not prematurely stop (rate hike) and be surprised later,” EAC -PM part-time member Sajjid Z Chinoy said at a Crisil’s India outlook seminar on ‘Rider in the storm.’
In the tenuous global environment, India should not need to prematurely loosen the fiscal or monetary policy but preserve macroeconomic stability in 2023, he said.
India should not be alarmed by slowdown in growth if any due to mild recession later this year but instead aim at integration into global supply chains.
“There will be some slowdown. We should not be alarmed by growth slowdown. India should look at putting medium growth on a strong footing and not worry about this year’s growth. We have to brace for the fact that exports will slow. Given the huge uncertainty , private investment will take time. We need to push capex to create blue collar jobs. When supply chains get recalibrated, it's an irreversible process, India should try and get integrated in it,” he said.
EAC-PM part-time member and Credit Suisse veteran Neelkanth Mishra said that RBI may be forced to do one more rate hike in April.
“Outside members in MPC feel only inflation should be the focus while RBI feels currency stability also should be considered. As companies start to refinance dollar loans with rupee loans, RBI may be forced to do one more hike. Though sticking to the tightening path may be a bigger policy mistake as the impact of rates show with a lag. There is the hard job of bringing core inflation down and global slowdown will do that,” Mishra said at the Crisil seminar.
"Even if India’s growth slows down, which may be inevitable, it will be resilient. Real rural wage growth has turned positive for the first time. While manufacturing should be a target, providing jobs also is key. If global demand stagnates, India’s manufacturing competitiveness will be tested over the next one year," he said.
Ila Patnaik, Chief Economist, Aditya Birla Group said that the US Fed decision will be perceived by markets and may create more uncertainty and India needs to be watchful of high trade threat from Chinese imports. As services exports seem to be holding the rupee up, RBI may not feel much pressure to raise rates, she added.
“As the US, Europe slow down, the year ahead is of global financial market uncertainty. The trade policy threat from China may be much more. There may be a sharp increase in imports from China because of trade diversion. Chinese imports have increased in textile, chemical, engineering exports and electronics. Should India allow heavy dumping from China? It will shape how investments in India respond. We seem to have missed the bus on manufacturing exports,” Patnaik said at the seminar.
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