SBI report suggests Reserve Bank likely to keep rates unchanged in August
The research report by SBI said that inflation may remain elevated in the coming months owing to various global and domestic factors.
The Reserve Bank of India (RBI) is likely to maintain the status quo in its August monetary policy review, as the retail inflation rises, according to a report published by the State Bank of India (SBI).
"We expect a status-quo in August. We believe RBI would still try to find a marriage of convenience of regulatory and developmental measures and monetary policy in August policy," PTI quoted the SBI report as saying on Wednesday.
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The research report by the state-run bank said that inflation may remain elevated in the coming months owing to various global and domestic factors.
The report also noted "the die has been cast, but the RBI can still hold out with a firm message of ratcheting up inflationary pressures in the August policy statement," PTI reported.
The next monetary policy committee (MPC) meeting is scheduled for August 4 to 6.
The Consumer Price Index (CPI)-based inflation hit a six-month high of 6.3 per cent in May, which surpassed the RBI's target range of 2-6%.
The SBI report cited a hike in food and commodity prices and localized lockdowns for the increase in inflation numbers. The core inflation also surged to 6.55%, it was seen around this level last time in June 2014.
"We are now revising our CPI average for FY22 to 6.1% and core inflation is likely to print at 6.4 per cent," PTI, cited the report.
The SBI report also said that the impact of the second wave of coronavirus pandemic and location-specific lockdowns have troubled supply chains even in rural areas, which will result in rising prices on essentials. This could also lead to rising core inflation, the report said.
The report said, according to PTI, once that happens on a durable basis, MPC would not be able to remain supportive of growth as its primary mandate is to ensure price stability.
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"If the RBI has to ultimately increase interest rates / change its stance to combat inflation, it may impact any incipient signs of recovery; on the other hand, being a mute spectator can seriously impair RBI's credibility in fighting inflation,'' the SBI report said.
In the bi-monthly MPC meeting, the RBI announced that it has decided to keep the repo rate unchanged at 4%.
Moreover, the SBI report recommended vaccinating a large segment of the rural population in the second quarter to combat the new mutant strains of the virus.
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