The still high CPI is due to food inflation on which there is not much impact of RBI rate hikes Says Dr Vikas Gupta, OmniScience Capital
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Below is View on CPI data by Mr Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital
With the WPI data reinforcing the CPI data in terms of a declining trend in inflation, it looks likely that the CPI will come into the RBI comfort zone of 6% without any further action by the RBI. The still high CPI is due to food inflation on which there is not much impact of RBI rate hikes. RBI was forced to do rate hikes due to the US Fed's, and other major global bank's, rate hikes to prevent importing inflation and a sudden depreciation in the INR.
Given that the SVB and Signature Bank closures have put the spotlight on the negative impacts of the accelerated rate hikes by the Fed on the irresponsibly skewed US Banks' balance sheets with huge Asset Liability Mismatches, it is likely that the Fed could stop with just a 25 bps rate hike, or might even consider a 25bps cut or no change in the March meeting.
While inflation control had become the prime focus of the Fed, maintaining the stability of the financial system is even more urgent and important
Thus, there is reasonable probability that the Fed would focus on stability of the financial system in this meeting and try to balance the focus on inflation, which is more long-term in nature, with the focus on stability which has a near-term urgency given the situation with the irresponsible asset allocation of banks to long-dated securities using short-dated liabilities.
Given the above mentioned circumstances, RBI is likely to also maintain a stable rate in the next meeting in early April" he said
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