Indian Rupee: Rate hike bets strengthen on higher inflation – DBS

Higher food costs and base effects are expected to push up India’s headline inflation in October, according to DBS Group Research, with core inflation also forecast to accelerate. Softer precious metals prices and delays to fuel price changes may ease pressure on non-food components. DBS expects a second consecutive rate hike in December as the Consumer Price Index is likely to exceed the Reserve Bank of India’s (RBI) target range. The goods trade deficit is also expected to remain wide.

Food Price Pressures Build as Further RBI Rate Hike Expected

"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. Know more.)