Inflation to average 4.7% this fiscal; RBI likely to tighten key interest rate in coming months: DBS report

According to DBS, good rains will support agricultural growth but a material respite to inflation will hinge on factors like oil prices, and rupee value against the US dollar

Press Trust of India July 26, 2018 14:29:03 IST
Inflation to average 4.7% this fiscal; RBI likely to tighten key interest rate in coming months: DBS report

New Delhi: A good monsoon notwithstanding, inflation is expected to average 4.7 percent in the current fiscal, up from 3.6 percent last year, and Reserve Bank of India is likely to tighten the key interest rate in the coming months, says DBS report.

According to the global financial services major, good rains will support agricultural growth but a material respite to inflation will hinge on factors like oil prices, the rupee value against the US dollar and fiscal dynamics.

India's southwest monsoon has recovered in the past week. Crop sowing activity is catching up, along with an improvement in the reservoir levels.

"The impact of a good monsoon on headline inflation is, however, less direct as past episodes of a strong monsoon did not necessarily mean low inflation as other offsetting factors played a bigger hand," said Radhika Rao, India Economist, DBS Bank.

Inflation to average 47 this fiscal RBI likely to tighten key interest rate in coming months DBS report

Representational image. Reuters

In a report, she said that for this year, the volatile movements of vegetables, fruits and the like have been a bigger driver of food inflation, than the rain-fed foodgrains and cereals.

Price movements are also influenced by other variables such as weak rural wage growth, recovering global food prices, minimum support price hikes, improving irrigation capacity and reservoir levels.

Moreover, factors like oil prices, the rupee, narrowing output gap and fiscal dynamics also impacts inflation.

"As it stands, we expect inflation to average 4.7 percent year-on-year in 2018-19 from 3.6 percent last year," the report said.

On RBI's policy stance, the report said high core inflation and a need to maintain financial stability is expected to keep the central bank on a tightening bias in the second half of this fiscal.

RBI's monetary policy committee will start its rate review meeting from 30 July and is expected to announce its call on 1 August. It had voted unanimously for a rate hike of 0.25 percent at the last review in June.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Mira Nair on why A Suitable Boy appealed to her, how she cast each part and her upcoming work
Entertainment

Mira Nair on why A Suitable Boy appealed to her, how she cast each part and her upcoming work

A Suitable Boy, directed by Mira Nair and adapted for screen by Andrew Davies, is now streaming on Netflix.

A malaria mystery, partly solved: What happens when the rains ends?
science

A malaria mystery, partly solved: What happens when the rains ends?

Scientists have long known that most of those fevers and deaths occur during the rainy months when mosquitoes abound.

Mira Nair's Monsoon Wedding musical to premiere in India in November 2021, filmmaker announces at Busan Film Fest
Entertainment

Mira Nair's Monsoon Wedding musical to premiere in India in November 2021, filmmaker announces at Busan Film Fest

The musical adaptation of Mira Nair's 2001 film Monsoon Wedding has 21 new songs composed by Vishal Bhardwaj