New Delhi – The High inflation in India is likely to delay concessional interest rates for a prolonged period, as inflation remains above the RBI’s target. SBI predicts no interest rate cuts in the upcoming MPC meetings due to persistent price pressures , Many developed economies of Europe along with America are cutting policy interest rates. But, expectations of concessional interest rates in India may be put on hold for a long time. In fact, SBI Research says that inflation is rising continuously. Due to this, there is no hope of reduction in interest rates in the MPC meeting to be held in January after December.
The SBI report has definitely expressed the possibility that inflation will start coming down a bit from January. But, it is not that things will become cheaper. This can actually happen due to the base effect. Meaning that if inflation was high in the base year, quarter or month, then the current inflation will look less than that.
The SBI report says that inflation is likely to be around 4.8 percent to 4.9 percent on average for the financial year 2025, which is more than the RBI target.
The Ministry of Statistics and Program Implementation released the retail inflation data on Tuesday. According to this, food inflation was 10.87 percent. The inflation rate in rural and urban areas was 6.68 percent and 5.62 percent respectively. Analysis shows that many big states are facing inflation higher than the national average.
India’s retail inflation stood at 6.21 percent in October, which is more than the RBI’s upper tolerable level of six percent. This is also the highest level of retail inflation in the last 14 months.
We stand by our statement of cutting the repo rate by 50 basis points from February 2025. However, we need to accept the uncertainty and keep a close eye on Trump’s policies. The price of edible oil will also be a matter of concern for the RBI.
According to a report by Union Bank of India, if the prices of vegetables are removed, then retail inflation is 3.6 percent and it remains within the target set by the RBI. Contrary to SBI Research, Union Bank in its report expects a 50 basis point cut in interest rates from February 2025.
The bank said that the recent increase in import duty on refined palm oil, refined soya oil and refined sunflower oil from 13.75 per cent to 35.75 per cent from mid-September will increase inflationary pressure.
