Reserve Bank of India could raise interest rates if food prices spike on the back of a rally in commodities due to the Ukraine crisis, Moody's Analytics' Steve Cochrane said on Wednesday.
The conflict in Ukraine is threatening global grain production and the supply of edible oils and fertiliser exports, sending basic commodity prices rocketing.
Last month, the Reserve Bank of India stuck to its accommodative policy stance to help the economy recover from pandemic lows, keeping the key lending rate at record lows.
"The RBI would like to keep interest rates unchanged for a while longer and not put any roadblocks in front of the Indian economy. But if food prices were to rise even further, the RBI might raise interest rates and try to contain inflation," Cochrane, the chief APAC economist at Moody's Analytics, told Reuters.
The crisis has sent crude prices soaring and caused a sharp spike in fertiliser prices, both crucial to the Indian agriculture sector.
Even before the crisis, retail inflation in India, the world's third-largest importer of crude, had gone over the upper limit of the RBI tolerance band, accelerating to a seven-month high just above 6% in January.
Food prices, which contribute to nearly half of the consumer price index, rose 5.43% year-on-year in January, compared with 4.05% a month earlier. Prices of edible oil rose nearly one-fifth from a year ago.
Cochrane said in the worst-case scenario Brent crude could rise to $150 per barrel on the back of Russian oil going off the market, which could lead to a global growth of less than 1% year-on-year over several quarters.
"It would feel like a recession. It would dent labour markets, cut incomes and increase poverty," Cochrane said.
He, however, still expects that the conflict would not extend outside of Ukraine and oil, natural gas and other commodity supplies to be modestly disrupted.
Moody's Analytics operates independently of Moody's Investors Service, the credit rating agency.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)
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