The Reserve Bank of India (RBI) could be pushed towards raising the policy repo rate from the current 5.25 per cent to around 6.5 per cent as accelerating retail and wholesale inflation increases the risk of negative real interest rates, according to a report by Systematix Institutional Equities.
The report said inflationary pressures are becoming increasingly broad-based, with headline Consumer Price Index (CPI) inflation rising to 4.82 per cent in August from 4.45 per cent in July. This marked the third consecutive month that inflation remained above the RBI’s 4 per cent target midpoint. Food inflation climbed to 5.95 per cent, while rural inflation at 5.23 per cent remained higher than urban inflation of 4.31 per cent.
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“The RBI’s current position of keep rate at 5.25% as long as possible looks increasingly out of step with the inflation trajectory — WPI persistently high, CPI nearing 5% and a projected climb toward 6% all point to growing discomfort with negative real rates scenario,” the report said.
