India’s headline Consumer Price Index (CPI) is projected to increase to a range of 4.5 to 4.8 per cent from the current level of about 4 per cent, as per a report by Yes Bank. The Reserve Bank of India’s (RBI) policy in April is anticipated to keep interest rates unchanged in a cautious approach.
According to the report, the country’s GDP growth is forecasted to moderate to around 7 per cent, with potential downside risks if the US-Iran conflict persists. Yes Bank highlighted that growth has been resilient due to strong domestic demand, including both private consumption and government capital expenditure.
Inflationary pressures are expected to arise from elevated input costs for manufacturers, a potential El Niño phenomenon that could drive up food prices, and increased fertilizer expenses if passed on to farmers. The report also cautioned that a prolonged crisis may lead the government to raise retail prices of petrol and diesel.
The report suggested that the RBI is likely to maintain a pause in its policy to support economic growth, as inflation is not expected to breach the 6 per cent mark and is largely driven by supply-side factors. It also mentioned that the current situation does not necessitate an immediate tightening of monetary policy, especially with the stability of the USD/INR exchange rate.
As inflation trends higher and the Indian Rupee depreciates, the report indicated that the cycle of rate cuts has concluded. However, it noted that an immediate rate hike is not on the horizon, given India’s favorable starting position of low inflation and high growth. Fiscal measures have also been implemented to mitigate the impact of rising oil prices by maintaining stable retail fuel prices.
