India receives a little respite from inflation, but the RBI remains vigilant

 India receives a little respite from inflation, but the RBI remains vigilant

According to figures released on Monday by the statistics ministry, the consumer price index increased by 4.87% from a year ago. This is a small increase above the forecasted 5.02% increase from September.

Headline inflation has remained over the medium-term objective of 4 percent for 49 consecutive months, although being within the RBI's tolerance range of 2–6% percent to feed the second consecutive month.

October saw a decline in India's inflation rate for the third consecutive month, but authorities are still likely to be concerned about increasing food prices in the run-up to elections.

According to figures released on Monday by the statistics ministry, the consumer price index increased by 4.87% from a year ago. This is a small increase above the forecasted 5.02% increase from September.

The major cause of the slight slowdown was a decrease in core inflation brought on by lower costs for healthcare, home goods, and apparel. The report indicated that food costs, which account for over half of the consumer basket, continued to be high.

Governor of the Reserve Bank of India Shaktikanta Das spoke last week about the possibility of shocks to food prices and said that decision-makers would be on guard.

Aditi Nayar, chief economist at ICRA Ltd., said in an email, "We estimate the Monetary Policy Committee to maintain a hawkish tone," assuming no changes to interest rates or the committee's position on policy at the next meeting. According to her, inflation will probably reach 5.6% by December and stay between 4.9% and 5.6% for the following two quarters.

The Reserve Bank of India has maintained a moderately hawkish policy stance to contain price pressures, although it has now held interest rates steady for four consecutive sessions. The objective of the RBI is to maintain inflation at 4% over time.

What is said by Bloomberg Economics

The Reserve Bank of India will only begin monetary policy easing when the Federal Reserve begins to reduce rates, due to the historically low policy rate differential between the two institutions. Our US team anticipates that to occur in the next year's second quarter. We anticipate the RBI to keep up its hawkish stance till then.

Due to expectations that the RBI would maintain interest rates on hold for a considerable amount of time, bonds have been trading in a quite narrow range during the last month.

According to Kotak Mahindra Bank analyst Upasna Bhardwaj, the decrease in inflation "provides some relief but we expect the movement of sub-5% headline inflation to remain brief." According to her, the RBI would most likely use liquidity measures and extend the rate-hold period in order to control risks.

October had a 6.61% increase in food costs over the previous year, with little change from September. Costs of apparel and footwear increased by 4.31%, while housing prices increased by 3.8%. Electricity and fuel prices decreased by 0.39%.

Core inflation, which excludes erratic energy and food costs, dropped to 4.25%.

As election season heats up, Prime Minister Narendra Modi and his administration have inflation and food prices under control as top priorities. November elections will take place in five states, and in 2024 there will be a national election in which Modi is vying for a third term in power.

The government has limited the export of rice and sugar, among other measures, in an effort to slow the rise in food prices in recent months. According to official statistics, the average price of onions, a staple of Indian cuisine, increased by more than 60% last month, forcing authorities to implement cost-cutting measures.

Another aggravating element is the recent fall of the currency. The rupee has dropped more than 1.5% vs the US dollar since July, and it just reached a record low as the US dollar gained momentum. The RBI's recent involvement in the spot rupee market is seen by market participants as an attempt on the part of the central bank to stop import inflation from damaging the economy.

According to QuantEco Research economist Vivek Kumar, "there has to be cautious because food prices are unpredictably fluctuating and volatile in nature." "You can feel comfortable knowing that the bond market will consider the core number."