Financial Services News

Declining core inflation limits need for further interest rate hikes by RBI: S&P Global Ratings

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S&P Global Ratings on February 7 said core inflation in India has been declining sequentially, and an elevated 6.25% policy rate limits the need for further rate hikes.

The Reserve Bank of India (RBI) has increased the short-term lending rate by 225 basis points since May last year to contain inflation, mostly driven by external factors, especially global supply chain disruption, following the Russia-Ukraine war outbreak.

The policy rate now stands at 6.25%. The RBI’s rate-setting panel – Monetary Policy Committee (MPC) – will decide on the interest rate on Wednesday.

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“In India, core inflation has been elevated for longer; however, it eased sequentially in the second half of 2022. An already elevated 6.25% policy rate limits the need for further increases,” S&P said in a report. 

Underlying economic activity continues to be strong, says RBI chief Shaktikanta Das

The RBI has been tasked to ensure that retail inflation remains at 4% with a margin of 2%. However, external factors have led retail inflation to remain above the upper tolerance limit for 11 months in a row. In November 2022, the retail inflation came below the 6% level and declined further in December at 5.72%.

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