New Delhi, May 18 (Representative) High retail inflation has been pinching the pockets of common man and there doesn’t seem any immediate relief in sight. India Ratings and Research (Ind-Ra) on Wednesday said it expects the retail inflation to average at a nine-year high of 6.9% in financial year 2022-23. “Ind-Ra expects the retail inflation to increase till September 2022 and start declining gradually thereafter. The inflation is expected to remain in excess of 6% for four consecutive quarters starting 4QFY22 till 3QFY23,” the leading research firm said in a report. With inflation staying above the Reserve Bank of India (RBI)’s upper tolerance band, Ind-Ra expects the policy repo rate to increase at least by 75 basis points (bps) in rest of the current financial year.
Hike in the key policy rate would make borrowing expensive leading to higher EMIs for the consumers. High interest cost could also affect private investment. Ind-Ra said that rising inflation in advanced economies has prompted global central banks to not only withdraw the ultra-loose monetary policy, but also raise their policy rates even before the RBI’s policy action on 4 May 2022. The US Fed raised its policy rate by 25 bps for the first time in March 2022 after a gap of more than three years and followed it with another 50 bps rate increase in May 2022. “As expected, the monetary tightening by the US Fed has triggered a portfolio investment outflow. Till 16 May 2022, foreign portfolio investors had pulled out US$ 21.2 billion from India,” Ind-Ra said. The report noted that retail inflation after averaging 4.1% during FY16-FY19 had crossed the RBI’s upper tolerance band of 6.0% for the first time in December 2019. It further said that immediately after the economy fell in the grip of the first Covid wave and subsequent countrywide lockdown monthly retail inflation mostly remained in excess of 6% till November 2020 because of supply-side disruption. “Thereafter, the monthly retail inflation till December 2021 had mostly remained within the RBI’s upper tolerance limit of 6%, but again breached the 6% mark in January 2022 and has remained so till April 2022 due to the global headwinds caused by the Russia-Ukraine conflict,” Ind-Ra said.