India Inflation Projected to Hit 20-Month High in August
Economists project India's retail inflation reached 4.9% in August, prompting predictions that the Reserve Bank of India may hike interest rates by December.
Retail inflation in India is projected to have reached a 20-month high of 4.9% in August, up from 4.5% in July. A poll of 21 economists indicates that deficient rainfall and rising food prices are the primary drivers, marking the third time inflation has exceeded the Reserve Bank of India's medium-term target of 4.0%.
Reserve Bank of India officials maintained the repo rate at 5.25% in August, but analysts now warn of imminent hikes. SBI Research predicts the central bank may implement two 25 basis point increases in October and December to combat rising risks. This outlook is exacerbated by geopolitical tensions in the Red Sea, Bab-el-Mandeb, and the Strait of Hormuz, which have pushed Brent crude oil prices above $100 per barrel.
Financial institutions report that inflationary pressures are becoming more broad-based. While core inflation was 3.87% in July, cost pressures are filtering into transport, pharmaceuticals, and electronics. SBI Research warns that if oil prices remain elevated, inflation for October and November could climb to 6.5% or higher. Additionally, India's 10-year government bond yield is expected to rise toward 7.15% amid global pressure and a high probability of a US Federal Reserve rate hike.
