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Inflation in protein items like chicken, mustard oil etc. softened in April. However, this might be an aberration, given that April was the month of Navratri and other religious festivals. This is also reflected in an increase in prices of milk and even fruits like mangoes, it said
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The inflation forecast for the financial year 2023 is at 6.5 per cent, taking into account the possibility of an extended food price shock, said the State Bank of India in a research report.
The consumer price index (CPI) inflation surged to 7.79 per cent on yearly basis in April 2022 as compared to 6.95 per cent in February 2022 mainly on account of food price inflation, it said.
The report said that the Russia-Ukraine conflict has significantly impacted the trajectory of inflation. The latest April 2022 inflation print shows wheat, protein items, milk, lemon, cooked meal, chillies, refined oil, potato, chillies, kerosene, firewood, Gold and LPG are contributing to overall inflation in a substantive manner.
Inflation in protein items like chicken, mustard oil etc. softened in April. However, this might be an aberration, given that April was the month of Navratri and other religious festivals. This is also reflected in an increase in prices of milk and even fruits like mangoes, it said.
“We now expect RBI to raise rates both in June and August policy meetings by a cumulative 75 basis points. Beyond August, rate actions might be more balanced and judicious. We are expecting the terminal repo rate to be 5.15 to 5.25 per cent by FY23,” it said.
The report also mentioned that the rupee has sharply depreciated against the dollar on account of galloping inflation both in the US and domestically. Aggressive rate hikes in the US have strengthened the dollar against the basket of currencies.
The dollar index went beyond 104, its highest since December 2002. Based on ASCB housing loan data from 2005, we have estimated that 8.75 per cent is the threshold weighted average lending rate for housing loans beyond which housing loan disbursals might decline.
This is tantamount to saying RBI should not increase the repo rate by more than 1.25 per cent for an incremental negative contribution to kick in. With a 40bps hike already done in May, the repo may not be increased more than 80 bps, i.e. upper limit should be 5.25 per cent (5.15 per cent repo rate+10 bps CRR impact). This would imply a full transmission of 125 basis points over and able the current EBLR of banks, it said.