(Bloomberg) -- India’s retail inflation probably breached the central bank’s target for a second straight month in February, prompting the monetary authority to possibly hike borrowing costs to the highest level in seven years.
Consumer prices rose 6.40% last month from a year earlier, according to the median estimate in a Bloomberg survey of economists ahead of data due Monday at 5:30 p.m. local time. That would be slower than 6.52% in January but still above the comfort level of the Reserve Bank of India, which aims to bring inflation closer to the mid-point of its 2%-6% target.
Price pressures resurfacing after easing below 6% in the last two months of 2022 will likely convince RBI to increase the benchmark rate for a seventh straight time when it meets on April 6, according to Rahul Bajoria, an economist with Barclays Plc. Risk of heat waves “may raise concerns about food production and prices,” he added.
Central banks that have slowed the pace of monetary tightening after initial signs of cooling price pressures are turning hawkish as inflation proved persistent. The Federal Reserve, which has moderated the pace to a quarter-point rise has flagged the possibility of returning to bigger rate hikes after its preferred inflation gauge unexpectedly accelerated in January and remains above target.
Core inflation in India, which has stayed above 6% for 16 months, must also ease toward 4% in line with the headline number, monetary panel member Shashanka Bhide said in an interview last month. RBI has raised the policy rate by 250 basis points since May 2022 to 6.5% and an increase up to 6.75% would take India’s repurchase rate to the highest since February 2016.
The impact of RBI’s most aggressive policy tightening in a decade has started taking a toll on Asia’s third-largest economy, with gross domestic product growth disappointing in the three months to December. The growth-inflation trade off has divided the monetary policy committee, with two of its six members calling for a pause in February to ensure economic growth isn’t derailed.
“Anecdotal evidence suggests mixed trends in inflation although raw material prices have largely eased,” said Teresa John, an economist with Nirmal Bang Institutional Equities Pvt. She sees a “high probability” of an additional 25-basis-point rate increase next month, even as she expects core inflation to have eased slightly to 5.9% in February.
Prices of a number of consumer goods, including packaged food and dairy products, refrigerators, air conditioners and personal care items are expected to rise by as much as 10%, with companies passing on some input price increases and the impact of rupee depreciation, John said.