Last Update: March 02, 2023, 10:56 IST
The RBI hiked the repo rate by 25 basis points for the sixth consecutive time on February 8, resulting in higher borrowing costs.
India Ratings, however, says that a possible decline in wheat production, a pick-up in vegetable prices and stability in core inflation may cloud the current retail inflation outlook.
The quarterly financial results for Q3 FY23 point to the need to hold off on any further hike in benchmark policy interest rates by the RBI. According to industry body Assocham, higher borrowing costs have an impact on sectors such as automobiles, housing and high-end consumer durables.
“India’s modest GDP growth of 4.4 per cent for the third quarter of fiscal 2022-23 is a function of several factors, especially the challenging global scenario impacting export demand and rising interest rates… while the seven per cent While the full FY2023 looks promising for the overall growth projection, the global economic outlook looks uncertain, making it imperative for us to remain vigilant to the rapidly changing developments. As far as India is concerned, a lot will also depend on the monsoon prospects,” said Deepak Sood, Secretary General, Assocham.
The RBI hiked the repo rate by 25 basis points for the sixth consecutive time on February 8, resulting in higher borrowing costs. It hiked interest rates by 35 basis points through December 2022. It was increased by 40 basis points in May and by 50 basis points each in June, August and September.
In its report, India Ratings and Research (Ind-Ra) said the prevailing temperature in February 2023 is again above normal indicating that wheat production may again face ‘terminal heat stress’ as in 2022 . As a result, wheat production may fall to 107.7 million tonnes (MT) against the second advanced estimate of 112.2MT. On an average, the maximum temperature in Punjab, a major wheat growing region, during 17-23 February 2023 has been 4°C to 5°C above normal.
It said, “RBI hikes repo rate by 25 bps in its monetary policy review in February 2023. As a result, the repo rate reached 6.50 per cent and it is widely believed that with this repo rate hike, the RBI has probably reached the final rate hike in the current rate hike cycle. However, since the February 2023 Monetary Policy Committee meeting, two developments have cast a shadow on this expectation. First, retail inflation at 6.5 per cent in January 2023 reversed the declining trend of the previous two months in retail inflation. Secondly, the detailed statement of monetary policy was released on February 22, 2023.”
Ind-Ra also said that a possible decline in wheat production, a pick-up in vegetable prices and stability in core inflation could cloud the outlook for the current retail inflation. This means that the cap on the policy rate has not yet been met.
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