MUMBAI: The Reserve Bank of India (RBI) is unlikely to react yet to multi-month high retail prices as economic recovery remains its prime focus amid the deadly second wave of the pandemic, according to two senior sources aware of the central bank’s thinking.
The annual retail inflation rate rose 6.30% year-on-year in May, up from 4.29% in April and sharply above analysts’ estimate of 5.30%. The wholesale price inflation rate rose 12.94%, its highest in at least two decades.
“There is a broad-based increase in consumer price index inflation but it still is not driven by demand and that gives the RBI some leeway.
“They will continue to wait and watch as a rate hike is out of question for now, ” the first source said.
India’s economy grew 1.6% in the March quarter compared with the same period a year earlier, but that was before a massive second wave of infections hit the country which prompted fairly stringent lockdowns across most states causing another round of job losses and a significant dent to demand.Asia’s third-largest economy has now reported 29.57 million Covid-19 cases and 377, 031 deaths, though some experts believe the actual numbers are far higher.
The central bank earlier this month reiterated its commitment to keeping monetary policy accommodative as long as necessary to revive and sustain growth on a durable basis.
“There is no way RBI can react to inflation at this stage, ” a second source said.
“The maximum push is coming from margins, from supply disruptions, from cost push pressures...but if there is demand, (RBI) will have to react. But till now, we don’t see evidence of demand pressures, ” he added.
The RBI did not immediately respond to a request for comment. — Reuters