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India Ratings and Research (Ind-Ra) has said the average headline inflation is set to accelerate to a nine-year high at 6.9 per cent in current fiscal (FY23), and the Reserve Bank of India (RBI) may go for more rate hikes during the fiscal. It stated the RBI will hike rates by another 75 basis points and possibly up to 125 basis points (1.25 percentage point) as well if the turn of events and data are very adverse.

It mentioned the first rate increase by the RBI could be of the order of 0.50 per cent in the June 2022 policy and another 0.25 per cent in the October 2022 policy. The cash reserve ratio could also be hiked by another 0.50 per cent to 5 per cent by the end of the fiscal. Further, it said that retail inflation averaged 4.1 per cent between FY16-FY19 crossed the 6 per cent tolerance number for the first time in December 2019, just at the cusp of the COVID-19 pandemic. Despite the collapse of demand in the pandemic, the monthly retail inflation mostly remained in excess of 6.0 per cent till November 2020 because of supply-side disruption. Thereafter, the monthly retail inflation till December 2021 had mostly remained below 6 per cent but again breached the mark in January 2022, and continued being higher till April.

Besides, referring to RBI Governor Shaktikanta Das' oft-repeated phrase of the ongoing geopolitical events being a tectonic shift, it said this means that the future inflation trajectory is going to be heavily contingent upon the evolving geopolitical situation which is in a flux. It also said that the rupee also remains under pressure as a result of the fund outflows as rates tighten globally, and imports keep rising due to hardening of oil prices. The rupee will depreciate by nearly 5 per cent and average at Rs 78.19 against the dollar in FY23.