The central bank held its main repo rate at 4.0 percent at its meeting last month and said it would keep policy accommodative to support an economy which nosedived 23.9 percent last quarter, the weakest performance on record.
The jump in retail inflation, especially that in food prices, has forced the rate-setting panel to take a cautious approach to interest rate policy. It has stayed above the RBI's targeted levels for five months, and most recently stood at 6.7 percent in August.
The retail inflation has been remaining above 6 percent, the upper band set by the RBI, for nine consecutive months. Why is the inflation high despite sluggish demand ? Moneycontrol's Sakshi Batra does a 3-Point Analysis.
As the August print shows, the CEA’s “expectation” has clearly gone wrong on the course of retail inflation.
Inflation in the vegetables basket stood at 11.41 percent in August as against 11.29 percent in July.
WPI August Food Index increased to 153.3 from 152.0 in July
While the government has eased lockdown restrictions to revive the economy, supply distortions remain due to coronavirus cases rising domestically at the fastest pace in the world.
While identifying the change in consumption seems like an arduous and impossible task, availability of improved technology for better quality data collection and new digital software for surveying could be the secret weapon we are currently missing.
Our preferred sectors are the ones that are least impacted by the COVID pandemic and can lead the upside going forward, says Deepak Jasani of HDFC Securities.
In the short-run, inflation can be triggered by excessive demand. If everyone suddenly wants hand sanitisers, the price of hand sanitisers will certainly go up, mainly, because it takes time to produce these goods in line with this new higher demand.
For momentum investors/traders these are good time to make quick bucks in stocks, for contra investors/ traders these are good times to sell and yet for those who are conservative may want to wait and watch.
The MPC would do well to follow its dharma of supporting the economy in these troubled times by continuing to maintain an accommodative policy even as inflation stays above its tolerance band
MPC’s dilemma will worsen if inflation spikes further forcing it to take a relook at the course of the monetary policy ahead.
The all-India consumer price index numbers for agricultural labourers and rural labourers (base:1986-87=100) for the month of July 2020 increased by 3 and 4 points to stand at 1,021 and 1,028 points, respectively, the statement said.
Corporate performance and GST revenue trends suggest GDP decline could be unexpectedly severe
India now has one of the highest inflation rates in the world
Perhaps one of the factors that held back the RBI from cutting rates is the rise in inflation expectations
In the last two consecutive quarters (January - March of FY 2019-20 and April - June of FY 2020-21), the average consumer price index-based inflation breached 6 per cent. The MPC need to target inflation to keep it within 4 per cent, within a band of +/- 2 per cent
Reserve Bank of India’s Monetary Policy Committee kept the repo rate unchanged at 4 percent and maintained the stance as accommodative.
The case for a further reduction in the policy rate seems weak at present
You must also strive to nurture and insulate it against shocks
Gold seems to rally sharply even in the backdrop of weakness in the US Dollar. This counter intuitive move in gold prices is about investors viewing gold as an inflation hedge more than safe haven asset now
The levelling off recovery on reopening calls for concerted containment efforts, and policy clarification
After the pandemic, the short run will probably see a deflationary bust. Will it be followed by rampant inflation?
Inflation in food articles during June stood at 2.04 percent, as against 1.13 percent in May. In fuel and power basket, deflation stood at 13.60 percent in June, against 19.83 percent in the previous month.