homeeconomy NewsInflation getting broad based, RBI set to hike repo by another 1% in FY23: Crisil report

Inflation getting broad-based, RBI set to hike repo by another 1% in FY23: Crisil report

Inflation getting broad-based, RBI set to hike repo by another 1% in FY23: Crisil report
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By PTI May 12, 2022 9:22:26 PM IST (Published)

The entity's research arm predicted that average consumer price inflation for FY23 will be 6.3 percent, higher above the RBI's tolerance of 6%, compared to 5.5 percent in FY22.

With headline inflation accelerating to an eight-year high of 7.79 percent in April, ratings agency Crisil said price rise is getting broad-based, and the Reserve Bank is likely to respond with rate hikes of up to 1 percentage point in FY23.

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The research wing of the entity said it now expects the average consumer price inflation for FY23 to come at 6.3 percent — above the RBI’s tolerance of 6 per cent — as against 5.5 percent recorded in FY22.
The RBI hiked its key rate by 0.40 percent in a surprise move last week while keeping an accommodative stance. Analysts said the move had to be undertaken fearing a sharp spike in the April data.
"Inflation is set to become broad-based this fiscal, rising across food, fuel and core inflation….we expect the RBI to raise repo rates by another 0.75 percent to 1 percent in the rest of this fiscal," Crisil said.
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Its analysts made it clear that the rate hikes will be ineffective in bringing down food or fuel inflation, but can help check a generalisation in inflation by curbing the second-round effects. The government "will need to pull its weight to control price rise," they said, admitting that it is a tradeoff where reducing taxes and subsidies will lead to added fiscal pressure.
The agency’s peer India Ratings expects the RBI to hike the repo rate by up to 0.75 percent in FY23 and also another 0.50 percent hike in the cash reserve ratio. The agency expects lower quantum of rate hikes despite expecting inflation print for FY23 to come in at a higher 7 percent, and added that a peak will be achieved in September 2022.
Stating that the off-policy hike was justified, Icra Ratings’ chief economist Aditi Nayar said, "We now foresee a high likelihood that the MPC will raise the repo rate by 0.40 percent and 0.35 percent, respectively, over the next two policies to 5.15 percent, followed by a pause to assess the impact of growth. As of now, we continue to see the terminal rate at 5.5 percent by the middle of 2023."
Kotak Mahindra Bank’s senior economist Upasna Bhardwaj said the release of the data will "intensify the pressure" on the MPC (Monetary Policy Committee) to aggressively frontload policy rate hikes, especially with no near term respite seen on the supply side amid geopolitical tensions.
"We expect another 0.90-1.10 percent of repo rate hike in 2022, with 0.35-0.40 percent in the June policy. We also expect additional CRR hike of 0.50 percent in order to quickly streamline the monetary policy and liquidity stance," she added.
The jump in inflation is dangerous and a scary start for the new fiscal year, Acuite Ratings and Research said in a note, adding that it also expects rate hikes of 1 percent in the remainder of the fiscal.
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