Kolkata, May 13 (FN Bureau) The Russia-Ukraine conflict has significantly impacted the trajectory of inflation, according to Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India. The latest April 22 inflation print shows wheat, protein items (chicken in particular), milk, lemon, cooked meal, chillies refined oil, potato, chillies, kerosene, firewood, Gold and LPG are contributing to overall inflation in a substantive manner, he said Interestingly, inflation in protein items like chicken, mustard oil etc. softened in April. However this might be an aberration, given that April was the month of Navratri and other religious festivals. This is also reflected in increase in prices of milk and even fruits like mangoes, Ghosh said Surprisingly, the contribution of petrol and diesel in overall inflation has been declining steadily since Oct’21, while there is a steady increase in weighted contribution of kerosene and firewood in headline inflation, he said Ghosh said the significant increase in weighted contribution of kerosene perhaps reflects the impact of high fuel costs in rural areas.
This does not augur well for rural demand. The weighted contribution of LPG has also increased reversing a downward trend. This however, may be attributed to commercial usage of LPG. “We now expect RBI to raise rates both in June and August policy meeting by a cumulative 75 basis points. Beyond August, rate actions might be more balanced and judicious. We are expecting the terminal repo rate to be 5.15%-5.25% by FY23. The rupee has sharply depreciated against the dollar on account of galloping inflation both in the US and domestically. Aggressive rate hikes in the US have strengthened the dollar against the basket of currencies.
The Dollar index gone beyond 104, its highest since December 2002,” he said “Based on ASCB housing loan data from 2005, we have estimated that 8.75% is the threshold weighted average lending rate for housing loan beyond which housing loan disbursals might decline,” Ghosh said “This is tantamount to saying RBI should not increase the repo rate by more than 1.25% for an incremental negative contribution to kick in. With 40bps hike already done in May, repo may not be increased more than 80 bps, i.e. upper limit should be 5.25% (5.15% Repo rate+10 bps CRR impact). This would imply a full transmission of 125 basis points over and able the current EBLR of Banks,” he added.