Skip to main content

Retail inflation rises to 6-month high, poses uncertainty for rate cut

By
The retail price inflation rose to a six-month high of 2.92 per cent in April, pushed up by costlier food items
The beginning of the financial year 2019-20 saw a bit of rising inflationary pressures, but the rate of price rise was still below the average of the Reserve Bank of India’s (RBI’s) mandate of 2-6 per cent.
Experts are divided whether the monetary policy committee (MPC) of the RBI will cut the policy rate in June. The retail price inflation rose to a six-month high of 2.92 per cent in April, pushed up by costlier food items. However, food inflation was still 1.1 per cent in the month against 0.3 per cent in the previous month. It was in March that food inflation broke the five-month trend of deflation. This may augur well for farmers who faced rural distress.
Inflation in urban areas rose to 4.64 per cent in April from 3.47 per cent in the previous month, which may not go down well with the middle class, if the trend persists. Much of the inflation in food items is generally attributed to the government’s recent move to give higher minimum support price (MSP) to farmers. However, the two important items where the support is given — pulses and cereals — did not see much pressure.
Pulses still faced deflation in April at 0.89 per cent, though the rate declined from 2.25 per cent in March. Cereals and products saw inflation falling to 1.17 per cent from 1.25 per cent over the period. Vegetables came out of deflation of 1.49 per cent in March to inflation of 2.87 per cent in April. “Vegetable inflation will increase in the summer months,” said Madan Sabnavis, chief economist at CARE Ratings.
Rajni Thakur, economist with RBL Bank, said lower than expected pick up in food prices will ensure that inflation will likely remain below the central bank’s target well into the second half of the current financial year. Among non-food items, clothing, footwear, rent and household services saw a decline in inflation. chart But, fuel and light witnessed a rise in inflation to 2.56 per cent in April from 2.42 per cent the previous month.
At the outset, it seems that MPC might go for rate cut with the index of industrial production (IIP) contracting in March and inflation still within its mandate. However, some economists believe that any such move would be put off. “We believe this (rate cut) will be deferred because the monsoon pattern needs to be understood better, the new government’s fiscal stance and deficit implications would have a bearing on potential demand side inflation and oil price impact would take shape in the next few months,” said Sabnavis.
 
India Meteorological Department (IMD) recently predicted the monsoon to be normal in this season. Thakur, however, said, “The case for further rate cuts along with additional liquidity measures just got stronger.”
 
Business Standard, 14th May 2019

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more