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The Reserve Bank of India is likely to keep singing a hawkish tune and possibly hike policy rates further because of additional risks to inflation (El Nino and geopolitical uncertainties) that have emerged in recent months, Leif Lybecker Eskesen, Chief Economist for India & ASEAN, HSBC, said in a report released today.
He said that inflation has picked up after months of food driven inflation. The pick-up in CPI inflation, which rose to 8.3 per cent y-o-y in March, and WPI inflation at 5.7% was above market estimates and reflective of the broader underlying inflation pressures in the supply constrained economy.
He said that 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 led to a food inflation of about 14 per cent then.
Eskesen said that if food inflation goes back to these levels from 9 per cent currently, it could potentially add up to 2.5 percentage points to headline CPI. The monthly increase of Re 0.50 per litre in diesel prices is set to continue for another year or so and this will add to cost and therefore inflation pressures.
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