India Ratings sees inflation hitting 9-year high at 6.9% in FY23; expects RBI to hike rates further

Average headline inflation is expected to hit a nine-year high of 6.9 per cent in FY23, a PTI report said on Wednesday quoting India Ratings and Research. The domestic rating agency has said that the Reserve Bank of India (RBI) may consider more rate hikes during the fiscal year.

According to India Ratings and Research, the RBI would raise rates by another 75 basis points and even up to 125 basis points (1.25 percentage points) if the turn of events and data are very adverse, said PTI.

"The first rate increase by the RBI could be of the order of 0.50 percent in the June 2022 policy and another 0.25 percent in the October 2022 policy," the agency said, adding that the cash reserve ratio could also be hiked by another 0.50 percent to 5 percent by the end of the fiscal.

In an off-schedule meeting on May 4, the RBI increased the repo rate, which it lends to the system by 0.40 percentage points, and the CRR or the percentage of deposits banks must park with the central bank by 0.50 percentage points, citing threats to the inflation target.

According to PTI, the Consumer Price Index (CPI) for April came in at 7.8%, exceeding the RBI's upper tolerance zone of 6% for the second month in a row. All analysts agree that additional hikes are on the way and that this will slow GDP.

Retail inflation would rise till September 2022, then gradually decline, it said, adding that it is likely to exceed 6 per cent for four consecutive quarters beginning in the fourth quarter of FY22 and ending in the third quarter of FY23.

It should be remembered that the RBI is mandated by its agreement with the government to keep inflation below 6 per cent, and failure to do so for three consecutive quarters will force the central bank to formally explain why, said PTI.

Retail inflation averaged 4.1 per cent between FY16 and FY19, according to the rating agency, and crossed the 6% tolerance level for the first time in December 2019, just on the verge of the COVID-19 pandemic. Despite the collapse in demand during the pandemic, supply-side disruption caused monthly retail inflation to remain above 6.0 percent until November 2020.

Meanwhile, the rating agency stated that the rupee is under pressure as a result of fund outflows as global rates tighten and imports continue to rise as oil prices stiffen. According to the report, the rupee will fall by roughly 5 per cent in FY23, averaging Rs 78.19 versus the dollar, PTI said.

At the same time, this work becomes even more important in the trillion-dollar digital economy, he added. 

Safe and reliable internet is for everyone. All the rules related to these have been made after discussion with the industry, so it is everyone's responsibility to follow it. He further said any cybercrime should be reported within 6 hours. It is necessary for all companies to keep their database secure for 180 days. Those who do not do so will have to follow it. These companies cannot go away from the rules of the country, said Chandrashekhar.