Mumbai, Aug 16: The inflation prints in the near term are expected to remain higher around 7 percent, with a gradual move likely towards the MPCs upper threshold of 6 percent by end-FY2023. “We expect inflation to remain elevated with a return to the sub-6 percent level not likely before February 2023. We maintain our FY2023E average CPI inflation estimate at 6.5 percent. We also maintain our call for additional 35-60 bps of repo rate hikes to 5.75-6 percent by end-CY2022,” Kotak Economic Research report said.
The report also said that some early signs of relief in inflation are visible in the near term due to easing commodity and crude oil prices, normal monsoons and improving reservoir levels, and easing global supply-chain pressures. Kotak Research expects the CPI inflation trajectory to be lower than the Reserve Bank of India’s (RBI) estimates by 70 basis points in the first half of the calendar year 2023, and maintain our FY2023E CPI inflation estimate at 6.5 percent. To tame inflation and stabilize the rupee, the central bank is likely to hike the repo rate in the near term. However, the pace of the rate hikes will be lower due to global disinflationary pressures and the pass-through impact of monetary tightening on demand-side pressures.
“Accordingly, we maintain our call for further 35-60 basis points of repo rate hikes to 5.75-6 percent by end-CY2022,” the report added. In July, CPI inflation has moderated to 6.71 percent, as against 7.01 percent in June due to moderation in food inflation. The moderation in food prices was led by a decline in the prices of meat and fish.
