India's central bank is likely to raise its inflation projection for the current fiscal year at its June monetary policy meeting and will consider more interest rate hikes, Reuters reported on Wednesday quoting a source aware of the development.
In April, the RBI raised its inflation forecast for the current fiscal year to 5.7%, 120 bps above its forecast in February, while cutting its economic growth forecast to 7.2% for 2022/23 from 7.8%.
The RBI will "certainly" raise the forecast again in June, as it did not want to do it in the off-cycle emergency meeting in May, "a Reuters source said, who did not want to be identified as the discussions are private.
The source did not detail how much the price forecast would be raised but said that the RBI's current view trails the International Monetary Fund's inflation forecast of 6.1% for India.
The next meeting of the MPC is scheduled for June 6-8.
"The MPC did an off-cycle hike as it did not want to bunch off a big hike in just two meetings in June and August. They wanted to spread it (out)," the source said.
On the back of rising food prices, inflation in March shot up to 7%, a 17-month high. It has now been above the upper limit of the RBI's 2%-6% tolerance band for three straight months and is likely to remain so in April.
The RBI cut the repo rate by a total of 115 bps in 2020 to cushion the impact of the COVID-19 pandemic and anti-virus measures. It is now looking to reverse those cuts at a faster pace than it wanted to earlier, the source said.
Before the crisis in Ukraine erupted, the RBI expected retail headline inflation to peak by March and then ease back towards 4% in the second quarter of 2022/23 that started on April 1.
On Monday, Reuters reported, that the government has asked the central bank to either buy back government bonds or conduct open market operations to cool yields that have hit their highest levels since 2019.
Meanwhile, the Reserve Bank of India (RBI) raised the repo rate by 40 basis points (bps) to 4.40% following an emergency meeting earlier this month.