HSBC sees further hike in interest rates as El Nino may spike inflation: Reports

Posted By: Religare
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HSBC sees further hike in interest rates as El Nino may spike inflation: Reports
According to a PTI report, foreign brokerage HSBC has predicted that the Reserve Bank of India (RBI) may further tighten its monetary policy and raise interest rates in the coming months as the possibility of the El Nino condition may severely impact monsoons this year, exerting upward pressure on retail inflation in Asia's third biggest economy.

Weather forecasts from many international agencies have signaled the possibility of El Nino this year which is a band of anomalously warm ocean water temperatures that can cause climatic changes across the Pacific Ocean, and thus adversely affecting monsoons, which may hit agricultural produce, causing a spike in prices of key food and other retail items.

India's retail inflation picked up in March as prices of food items accelerated. Amid the threat of El Nino looming large and other geographical uncertainties, the RBI is expected to keep a hawkish policy stance, raising chances of an upward hike in interest rates in the coming months, HSBC said, the PTI reported.

The foreign brokerage warned that if food inflation climbs back to levels seen in 2009 when El Nino hit monsoons, it could add up to 2.5 percentage points to the headline consumer price inflation. In 2009, food inflation surged to 14 per cent as the El Nino condition disrupted monsoons.

Dion Global Solutions Ltd.

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