India’s monetary policy committee is likely to raise rates in April to address unrelenting inflation, according to economists. The focus remains on reducing inflation globally and in India.
India’s Monetary Policy Committee to Raise Rates in April
India’s monetary policy committee is expected to deliver a 25-basis point rate hike in April to address unrelenting inflation, according to economists. While global markets have lowered rate hike bets from the U.S. following the banking crisis, India’s headline and core inflation continues to remain above the Reserve Bank of India’s upper limit. In February, annual retail inflation was recorded at 6.58%, only slightly lower than January’s 6.52%.
Inflation and the Focus on Reducing It
The focus for policymakers remains on reducing inflation both globally and in India. According to Gaura Sen Gupta, an economist with IDFC First Bank, policymakers are likely to use other tools to ringfence financial institutions and use rate hikes to tame inflation. The RBI’s focus on reducing inflation is reflected in its recent monetary policy statements.
In its February monetary policy review, the RBI had noted that the current inflationary pressures are mainly due to supply-side factors such as high taxes on petroleum products and logistics costs. The central bank had also expressed concerns over the increase in global commodity prices and the impact it could have on India’s inflation.
Global Factors and Rate Hike Bets
While global markets have lowered rate hike bets from the U.S. following the banking crisis, India’s monetary policy committee is expected to raise rates to address inflation. The recent banking crisis has led to concerns over the stability of the financial sector, and policymakers are expected to take steps to ringfence financial institutions.
The banking crisis has also led to increased volatility in global financial markets, which could have an impact on India’s economy. However, the RBI has stated that India’s financial sector is well-capitalized and has adequate liquidity to deal with any shocks.
Other Tools to Address Inflation
Apart from rate hikes, policymakers have other tools at their disposal to address inflation. One such tool is the use of open market operations (OMOs), which involve the purchase or sale of government securities in the market. OMOs can help to inject liquidity into the system or drain excess liquidity, depending on the prevailing conditions.
Another tool that policymakers can use is the cash reserve ratio (CRR), which is the percentage of deposits that banks are required to maintain with the RBI. By increasing the CRR, policymakers can reduce the amount of money available for lending, which can help to rein in inflation.
Conclusion
In conclusion, India’s monetary policy committee is expected to raise rates in April to address unrelenting inflation. The focus remains on reducing inflation both globally and in India. While rate hikes are one tool that policymakers can use to address inflation, they also have other tools at their disposal such as OMOs and the CRR. The recent banking crisis has raised concerns over the stability of the financial sector, but India’s financial sector is well-capitalized and has adequate liquidity to deal with any shocks.
