Surg­ing hous­ing costs may lead to hike in rates

Business Standard - - ECONOMY - ANIR­BAN NAG

The stage seems set for the Re­serve Bank of In­dia to de­liver an­other hike in in­ter­est rates. The rea­son—re­tail in­fla­tion, which ac­cel­er­ated to a five­month high. Thurs­day’s head­line in­fla­tion num­ber for the month of June will be scru­ti­nised by the six-mem­ber mon­e­tary pol­icy com­mit­tee that will meet later this month and an­nounce its de­ci­sion Au­gust 1. The panel, which has been very vo­cal on the need to curb in­fla­tion, is sure to raise in­ter­est rates by 50 ba­sis points in the next 12 months, pric­ing in swap mar­kets show.

An­a­lysts at HSBC Hold­ings and ANZ Bank­ing Group are ex­pect­ing a quar­ter per­cent­age point in­crease in Au­gust, though a ma­jor­ity of econ­o­mists in a Bloomberg Survey fore­cast the cen­tral bank to stand pat. The lat­est data, which shows un­der­ly­ing price pres­sures are surg­ing, could prompt a few more an­a­lysts to change their call. Con­sumer prices climbed 5 per cent in June, the high­est level since Jan­uary. That com­pares with the 5.28 per cent me­dian es­ti­mate in a Bloomberg survey of 43 econ­o­mists and May’s 4.87 per cent pace.

“The core- CPI in­fla­tion hard­ened to 6.4 per cent in June, with a fairly broad-based up­trend in mis­cel­la­neous items as well as cloth­ing and footwear,” said Aditi Na­yar, prin­ci­pal econ­o­mist at ICRA Ltd. This rise means there is a “high like­li­hood of a repo rate hike” in the Au­gust pol­icy.

A com­bi­na­tion of a weaker ru­pee, bet­ter growth prospects, nar­row­ing out­put gap and higher as­sured prices for crops, along with costlier oil, are likely to put pres­sure on in­fla­tion in the com­ing months and un­der­pin rate hike ex­pec­ta­tions.

The cen­tral bank ex­pects oil av­er­ag­ing around $78 a bar­rel to stoke in­fla­tion by 30 ba­sis points, com­pli­cat­ing its job of keep­ing the gauge at the 4 per cent mid-point of its tar­get band over the medium term. Pol­icy mak­ers have been ex­press­ing dis­com­fort over ris­ing price pres­sures and in­creased in­put costs, some of which is be­ing passed on to con­sumers.

In June, the RBI raised rates for the first time since 2014 and re­vised its in­fla­tion fore­cast for the fis­cal year 2019, with the sec­ond-half es­ti­mate re­vised to 4.7 per cent from 4.4 per cent.

Core in­fla­tion—which strips out volatile food and fuel prices and a risk flagged by some mon­e­tary panel mem­bers—has moved higher, mak­ing the RBI more watch­ful.

June head­line in­fla­tion num­ber will be scru­ti­nised by mon­e­tary pol­icy com­mit­tee that will meet later this month

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.