As per Deutsche Bank estimates, India's consumer price index is likely to touch 6.9 percent YoY in August, and it expects core inflation to likely stand at 6 percent, Reuters reported.
Deutsche Bank said that even though crude oil prices have fallen from record highs in recent weeks, the favorable impact will be less reflected in the CPI as fuel items account for a very small weight.
Retail inflation fell to 6.71 percent in July due to lower food prices, but it remained above the Reserve Bank's 6 percent comfort level for the seventh consecutive month. So far this year, the Reserve Bank of India has raised interest rates by 140 basis points, to 5.40%.
Meanwhile, the risks to food inflation persist, with negative seasonality kicking in for the September-November period, the bank said.
"Key vegetables tend to shoot up during this period," said Kaushik Das, chief economist for India and South Asia at Deutsche Bank.
Besides seasonality, Das highlighted that the sowing of pulses has also fallen by 5% year-on-year.
"These could be potential risk factors, which could keep food inflation momentum high, consequently resulting in an elevated CPI closer to the 7% mark," he said.
The Reserve Bank of India will continue with rate hikes, likely delivering another 75 bps to 85 bps bump up in the rest of this financial year, Das said.
"Though we would expect the central bank to hike rates in smaller clips from the September meeting, given the significant front-loading (around 200 bps-205 bps of tightening has already happened) that has already been delivered to protect against future growth headwinds."
On the other hand, rating agency Moody's said that the higher inflation, and the tightening financial conditions on the back of policy tightening, were enough to derail India's ongoing recovery from the pandemic in 2022 and 2023. Moody's has forecast India's real GDP to grow at 7.6% in FY23 and 6.3% in FY24.
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