India’s Rate Setters Become Cautious of Surging Food Prices

The six members of the Reserve Bank of India’s monetary policy Cautious of Surging Food Prices committee are expected to retain the repurchase.

On Thursday, according to all 42 analysts surveyed by Bloomberg. El Nino, which brings drier weather and might damage crop output, is anticipated to occur, and policymakers are keeping a watch on it.

19 out of 20 economists who gave their predictions on the stance predicted that the RBI would maintain its “withdrawal of accommodation” posture; only one economist anticipated a change in terminology.

According to Goldman Sachs analyst Santanu Sengupta, “we expect the RBI to look past the surge in food inflation, take solace in declining core inflation.

Keep the policy repo rate unchanged in calendar 2023, and continue Bloomberg Economics’ Opinion with hawkish guidance.”

Retail inflation reached a three-month high of 4.81% in June as a result of rising food costs brought on by lesser monsoon rainfall in some areas of India and floods in other areas.

A staple of Indian diets, rice and wheat, are becoming more expensive, and economists believe these factors contributed to price increases last month that exceeded the RBI’s target range of 2%-6%.

Due to this, swap pricing reveals that traders are delaying rate-cut bets well into the following year, with some of them even giving an outside probability that rates will increase at upcoming policy meetings.

When Mumbai Governor Shaktikanta Das makes the announcement on Thursday at 10 a.m. and holds a news conference at noon, keep an eye out for the following.

The Indian economy is showing signs of continued strength, according to high frequency indicators like. The services PMI and tax receipts, giving the central bank some freedom to concentrate on battling inflation.

Cautious of Surging Food Prices

But the RBI will need to maintain the growth momentum given that elections will be held the following year.

Additionally, as crude prices rise, the third-largest oil consumer Cautious of Surging Food Prices in the world is seeing an increase in the price of imports.

According to data from the oil ministry, the average price of crude oil in August was $85.76 per barrel, which is the highest price since November of last year.

By reducing earnings, food and fuel inflation may reduce consumer demand, strengthening the need for the central bank to take precautions against any potential knock-on consequences of price increases.

According to Samiran Chakraborty, economist at Citigroup Inc., “RBI will probably have no choice but to raise their average fiscal year 2023–24 inflation forecast of 5.1% by about 30 basis points.”

According to him, the central bank Cautious of Surging Food Prices prediction for India’s GDP for the year could remain at 6.5%.

In his June policy statement, Das predicted that inflation would stabilize around roughly the middle of 4% on a more consistent basis.

The central bank governor may provide clues about the rate path in the future, therefore economists are waiting to see if this is still the case.

According to Citi’s Chakraborty,

RBI policy may be viewed as having a “dovish” tone if central bank language suggests the recent surge in vegetable prices is only temporary.

If there are indications that repeated supply shocks necessitate monetary policy intervention, it may become “hawkish,” he added.

It is difficult for the RBI to switch to a more lax policy because it must take into account the increased borrowing costs imposed by the US Federal Reserve and the Bank of England as they attempt to reduce price pressures.

At its meeting on August 10, the Reserve Bank of India is anticipated to keep its main rate at 6.5 percent.

Given the increase in inflation since the last review and the narrowing of the US-India rate differential following the Federal Reserve’s rate hike in July.

However, we believe the RBI would prioritize indications of a slowing domestic recovery and watch to see if the recent increase in inflation is only temporary.

To view the complete market for Abhishek Gupta, an economist from some investors are worried the central bank may start tightening again. India bonds report, go here.

According to a second Bloomberg survey, economists have moved out rate easing predictions from January to March to the April to June quarter of next year.

Suyash Choudhary, head of fixed income at Bandhan Mutual Fund, stated that “the one-year overnight index swaps is now pricing in a significant probability of an additional rate hike sometime later this year.”

The possibility for an immediate rebound in Indian bonds is limited, according to traders. Since falling below 7% in recent months, yields have been increasing.

According to Rajeev De Mello, global macro portfolio manager. Gama Asset Management SA, “India bond yields should remain in a high range.” He continue, “There isn’t much room for the rate setters to signal easier policy.”

At its policy meeting next month, the central bank will probably be force. To review its projections for inflation and growth as a result of the war-relate uncertainty.

Cautious of Surging Food Prices

Although, given that policymakers are determine to promote the economy’s long-term recovery. It’s unclear that it will push the RBI to raise interest rates just yet.

On the back of increasing food costs, India’s headline inflation spiked to an eight-month high in February.

The prognosis is expect to get worse due to delays in the supply. Commodities brought on by Russia’s conflict in Ukraine.

According to a statement released on Monday tics. Ministry, consumer prices increase 6.1% from a year ago last month.

That is far more than the upper bound of the Reserve Bank of India’s inflation target band and quicker. Than the median prediction of a 6% gain in an economist survey conduct by Bloomberg.

Visit a fast-food restaurant to experience the consequences of inflation in India firsthand. A free cheese slice is no longer include with sandwiches at Subway.

Burgers at Burger King and McDonald’s are tomato-free. Due to rising food prices, restaurants are cutting expenses.

Tomato-based dishes, which are popular nationwide, are becoming Cautious of Surging Food Prices more expensive at neighborhood restaurants.

Vegetable prices rose by 37% year over year in July. Tomato prices have soar by 1,400% in some wholesale markets in the last three months.

The annual food inflation rate rose to 11.5% in July, which was a 15-month high. The highest in more than three years (see chart).

The fluctuating weather is partly to blame for the rise in food prices. Farml has been flood and supply networks have been interrupt across most of the nation by heavy rains.

Crops elsewhere have shriveled due to the heat. Farmers in India had sown 40% fewer seeds by the end of July. Than they typically would have by that time of the year.

And now a particularly dry August threatens to reduce production even more. The amount of rain expected this month will be the least in more than a century.

For the time being, the Reserve Bank of India is remaining calm. For the third time since April, the central bank kept interest rates unchanged on August 10.

Its governor, Shaktikanta Das, thinks that the current increase in food prices is only temporary and anticipates. That prices would begin to decline in September.

Analysts are divide on this. Vegetable costs often rise from June through September, when the monsoon season arrives, before declining.

However, other analysts think that the current increase will continue Cautious of Surging Food Prices for a while.