According to the MPC calendar for FY23 released by the RBI last week, the committee will hold its next meeting between April 6 and 8. In its last meeting in February, the MPC had kept policy rates on hold for the 10th consecutive time.
“The RBI currently seems to be riddled in a predicament. Inflation possibly could be the biggest risk ahead for RBI till Q2 FY23” said SBI group chief economist Soumya Kanti Ghosh. He expects the RBI to maintain a pause on policy rates and retain accommodative stance with a limited possibility of stance changing to neutral.
“Given the unprecedented uncertainties on the geopolitical front, we expect the MPC to opt for a status quo in its next meeting,” said Saugata Bhattacharya, chief economist, Axis Bank. He also revised GDP growth forecast to 7.8% in FY23 from 8.9% and expected inflation to be higher at 5.8% as against 5.4%.
Fuel prices have been hiked 11 times in the latest round that began on March 22 after a four-and-a-half-month pause. Petrol prices have gone up by around Rs 8 a litre. This follows a surge in international crude prices in the wake of the Russia-Ukraine war. Crude oil prices were ruling around $85 a barrel when the Union Budget was being drawn in January and has largely been over $100 since the Ukraine invasion.
According to economists, key imponderables are: How long will prices be elevated, at what levels will they reset and the extent of increase that will be absorbed by the government through tax cuts. Every 10% hike in fuel adds 0.22 percentage point to inflation.
Acuite Ratings & Research chief analytical officer Suman Chowdhury said, “From the domestic standpoint, with India being a net importer of crude oil, the spike in energy prices is clearly a major macroeconomic disruptor, which will weigh on growth prospects and lead to a sharper rise in inflation as well as to a wider current account deficit”.
“Due to risks to India’s inflation outlook amid spurt in commodity prices along with tighter global financial conditions, we expect the RBI to revise its inflation forecast upwards,” said Chowdhury.