Searing heat wave boosts RBI case to wait on rate cuts

A sizzling heat wave in large parts of the country will raise concerns for India’s policymakers already grappling with sticky inflation, potentially pushing back the timing for interest rate cuts, economists said.

The nation’s weather office on Monday predicted hotter-than-usual temperatures across the country in the three-month period through June, with a high probability of heat wave episodes lasting as long as 10 to 20 days in certain regions.

“A heat wave could potentially slow the disinflation process and keep prices of vegetables elevated,” Teresa John, an economist at Nirmal Bang Institutional Equities Pvt, said by phone. “Our base case for interest rate cuts was June, but now August or October seems more likely,” she said.

The pace of inflation in India has remained above the central bank’s 4% target for the last few months, giving policymakers reason to remain cautious. The Reserve Bank of India has kept its benchmark rate unchanged for six straight policy meetings and is scheduled to hold its next monetary policy review on Apr. 5.