Indian Rupee: Rate Hike Bets Strengthen on Higher Inflation – DBS

A second consecutive rate hike in December is expected by DBS Group Research. Higher food costs and base effects are forecast to lift India’s headline inflation in October, while core inflation also accelerates. Softer precious metals prices and delays in fuel price adjustments may ease pressure on non-food components. DBS expects the Consumer Price Index to exceed the Reserve Bank of India’s (RBI) target range and the goods trade deficit to remain wide.

Food Costs Rise as Another RBI Rate Hike Looks Likely

"We expect headline inflation to rise to 6.0% yoy in October from 5.5% the month before, on higher food costs and a low base effect."

"High frequency data pointed to a further pick-up in sequential pressures in food segments, across cereals, edible oil, perishables (vegetables) etc."

"Non-food components should find relief from further moderation in precious metals and delay in passage of retail fuel price changes."

"Core inflation is nonetheless set to quicken to 4.5-4.6% as services notch increases and as indirect tax effects in the base, fall out of the equation."

"With inflation expected to test past the higher end of the RBI target range, we expect a second successive rate hike in December."

"The decline in oil prices has also led to cooling of overnight OIS rates as concerns over aggressive rate hikes have eased. Goods trade deficit is likely to stay wide at above $30bn in Oct."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)