No relief from inflation yet, RBI may increase repo rate by 0.75% by August

Big hand of war in inflation

SBI Economist believes that the increase in the prices of food products, oil, transportation and energy due to the Russia-Ukraine war has contributed 52 percent to inflation. The current inflation situation is not likely to improve immediately.

Country’s largest public sector bank SBI (SBI) economists believe that the Russo-Ukraine war (Russo-Ukraine war) contributed to about 60 percent of the sharp increase in inflation recorded recently.Russia Ukraine War) of the factors. These economists have feared that the Reserve Bank of India (RBI) will continue till August to bring inflation under control. policy repo rate ,Repo Rate) may increase further by up to 0.75 per cent. In this way the repo rate will reach the level of 5.15 percent before the epidemic. Economists in a study on the impact of the Russo-Ukraine war on inflation have found that the geopolitical situation created by this war is behind the price increase of at least 59%. In this study, the month of February was used as the basis of price comparison.

According to the study, the increase in prices of food and beverage products, fuel, transport and energy due to war alone contributed 52 per cent to inflation, while 7 per cent was affected by rising costs associated with everyday consumption products.

Inflation is unlikely to improve

Economists have said in their remarks that the current situation of inflation is not likely to improve immediately. However, the form of price hike has been seen differently in urban and rural areas. In the rural areas, due to the increase in the prices of food products, the impact of inflation is being seen more, whereas in the urban areas, the effect of increase in the price of petrol and diesel is more.

RBI to raise interest rates in MPC meeting in June-August

According to the report, in view of the continuous increase in inflation, it is now almost certain that the Reserve Bank will increase interest rates during the upcoming June and August policy review and take it to the pre-pandemic level of 5.15 percent by August.

However, SBI economists have asked the RBI to look into the aspect whether these steps can bring down inflation in a meaningful way if the war-related deadlock is not resolved soon.

Risks will be fixed again

Along with this, he has supported the steps of the central bank, saying that the increase can also have a positive effect. Accordingly, higher interest rates will also be positive for the financial system as the risks will be reset.

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He justified RBI’s intervention in the NDF market instead of banks to support the rupee, saying it has the advantage of not affecting the liquidity of the rupee. Apart from this, there will be no reduction in foreign exchange reserves in this way.