Inflation getting broad-based, RBI set to hike repo by another 1% in FY23: Crisil
With headline inflation accelerating to an eight-year high of 7.79 per cent 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. It mentioned ‘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 per cent to 1 per cent in the rest of this fiscal.’
The RBI hiked its key rate by 0.40 per cent in a surprise move last week while keeping an accommodative stance. Crisil said it now expects the average consumer price inflation for FY23 to come at 6.3 per cent -- above the RBI's tolerance of 6 per cent -- as against 5.5 per cent recorded in FY22.
The agency 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, admitting that it is a tradeoff where reducing taxes and subsidies will lead to added fiscal pressure.
