Rise In Retail Inflation Will Make RBI Keep Rate Cut On Hold, Say Experts

India’s annual retail inflation rose to 6.93 per cent in July, as food prices continued to soar due to disrupted supply chains, government data showed on Thursday. July inflation was higher than the 6.15 per cent forecast in a Reuters poll of analysts.

Here’s what experts said:

Rupa Rege Nitsure, Group Chief Economist, L&T Financial Holdings, Mumbai:

The CPI print is along expected lines and justifies in retrospect the RBI’s decision to take a pause in the rate reduction cycle. Reserve Bank of India (RBI) has been supporting the system by using appropriate tools like liquidity and restructuring facility. Given the distortions in supply chains and transportation, I don’t expect a rate cut in the remaining part of 2020. Liquidity support will, however continue and prevent a sharp reversal of benign interest rates.”

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, Mumbai:

CPI inflation at 6.93 per cent was much higher than consensus estimates, led by higher food inflation. Clearly, supply chain issues have been feeding through the food prices, especially vegetables and partly from higher fuel prices. The magnitude was a surprise though the direction was broadly expected. However, over the next few months, food prices should normalise though seasonally food prices do see some uptick in the June-September period. In terms of the monetary policy, the RBI Monetary Policy Committee (MPC) is likely to remain on pause in the October policy meeting and will reconsider once inflation moves firmly below the 6 per cent mark and steadily declining towards 4 per cent.

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