New Delhi, May 23 (FN Agency) Retail inflation may cool down to 6.5-7 per cent in May from a 95-month high of 7.8 per cent in April 2022 on account of a high base and the reduction in excise duty on auto fuels, rating firm ICRA said on Monday. The rating agency said that central excise duty cut on petrol and diesel may shave off 18-20 bps from the June 2022 retail inflation print. It has estimated the average consumer price index (CPI) inflation for FY2023 at 6.5 per cent. Providing major relief to the common man, the government on May 21 slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. The agency said that the excise duty cut has distinctly lowered the probability of highly front-loaded rate hikes by the Reserve Bank of India (RBI).
“We are penciling in a repo hike of 40 bps and a 35 bps, respectively, in the June 2022 and the August 2022 policy reviews, to revert to the pre-pandemic level,” ICRA said. “Given the cut in excise duty on fuels, we expect a longer pause by the MPC (Monetary Policy Committee) to assess the impact on growth, once the pre-pandemic level of the repo rate of 5.15% is reached,” it added. The central bank factors in retail inflation while fixing key policy rate. The RBI is tasked to maintain price stability in the country and keep the retail inflation in the range of 2-6%. Meanwhile, RBI Governor Shaktikanta Das in an interview to CNBC TV 18 on Monday said that expectations of increase in repo rate in upcoming MPC meetings is no brainer while adding that it would not be accurate to say that rates will be hiked to 5.15%. In a bid to contain inflation, the RBI earlier this month increased repo rate by 40 basis points (bps) and also hiked cash reserve ratio (CRR) by 50 basis points.