Ukraine may extend RBI’s hand on food inflation rates over crisis: Moody’s Analytics

Moody’s Analytics’ Steve Cochran said on Wednesday that India’s central bank may raise interest rates if food prices rise due to a rise in commodities due to the Ukraine crisis.

The conflict in Ukraine threatens global grain production and the supply of edible oils and fertilizer exports, raising prices of basic commodities.

Last month, the Reserve Bank of India stuck to its key policy stance to help the economy recover from the pandemic, leaving key lending rates at record lows.

“RBI wants to keep interest rates unchanged for some time and not put any constraints on the Indian economy. But if food prices rise further, RBI may raise interest rates and try to control inflation. could.” Moody’s Analytics chief APAC economist Cochrane told Reuters.

The crisis has pushed up crude oil prices and caused a sharp jump in fertilizer prices, both critical to the Indian agriculture sector.

Even before the crisis, retail inflation in India, the world’s third-largest importer of crude, had exceeded the upper limit of the RBI tolerance band, reaching a seven-month high of above 6% in January.

Food prices, which contribute almost half to the consumer price index, rose 5.43% year-on-year in January, compared to 4.05% a month ago. Edible oil prices rose by about one-fifth from a year ago.

Mr Cochrane said in a worst-case scenario, Brent crude could rise to as high as $150 a barrel as Russian oil is driven out of the market, leading to global growth of less than 1% annually for several quarters. ,

“It will feel like a recession. It will break into labor markets, cut income and increase poverty,” Mr. Cochran said.

However, he still expects that the conflict will not escalate outside Ukraine and that supplies of oil, natural gas and other commodities will be marginally disrupted.

Moody’s Analytics operates independently of the credit rating agency Moody’s Investors Service.