The RBI is likely to keep singing a hawkish tune and possibly hike policy rates further because of additional risks to inflation in the form of El Nino and geopolitical uncertainties that have emerged in recent months, said Leif Lybecker Eskesen, Chief Economist for India and Asean, HSBC, in a report released on Thursday.
He said inflation has picked up after months of food prices-driven inflation.
The pick-up in CPI inflation, which rose to 8.3 per cent year-on-year in March and WPI inflation at 5.7 per cent, was above market estimates and reflective of the broader underlying inflation pressures in the supply-constrained economy.
He said a dry spell this year due to El Nino could push up food inflation.
The last time when El Nino affected weather patterns was in 2009 and this had led to food inflation of about 14 per cent then. He said if food inflation goes back to these levels from 9 per cent presently, it could potentially add up to 2.5 percentage points to headline CPI.
The monthly increase of 50 paise a litre in diesel prices is set to continue for another year or so and this too will add to cost and, therefore, inflation pressures.