RBI To Hike 35 To 50 bps In September Monetary Policy Review, SBI Research Ecowrap Report Says

In September, the Reserve Bank of India (RBI) is expected to hike interest rates, though it may only be by a few basis points, between 35 to 50, according to a research report from the State Bank of India's Economic Research Department.

The report titled - CPI inflation increased marginally: September rate hike a close call between 35 bps and 50 bps- said, "Beyond September, we are penciling in a minimal and token rate increase as inflation is likely fall in a jiffy in H2FY23."

Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI), is the author of the report.

SBI Ecowrap report said, "The most interesting trend is the negative growth in protein rich item eggs and steady deceleration in prices of meat and fish. This trend is rather surprising as current period of high inflation is not driven by protein rich items. Overall, with resumption of good movement from Black Sea the prices of various food items such as oil will see some moderation. Fluctuation in output due to climatic factors and high cost of transport still underscores the need to be watchful of inflation in general."

"Our results show that supply side factors which were responsible for 65% of CPI inflation in May had dropped to 58% in Jul but has increased to 61% in August possibly reflecting the increase in unseasonal rains. Interestingly, demand factors continued to remain range bound and the contribution od demand seemed to have slowed down in August, though marginally. Clearly, the jump in inflation in India continues to be a by-product of supply disruptions.," the report added.

"This again substantiates that the current inflation is mostly supply driven. Among services, the contribution of 'Housing' & 'Education' prices is increasing, indicating the real estate market has now significantly recovered from the pandemic blues. We believe the RBI is likely to raise rates in September policy and it could be a close call between 35 and 50 basis points. Beyond September, we are penciling in a minimal and token rate increase as inflation is likely fall in a jiffy in H2FY23," the SBI Research Ecowrap concluded.