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Inflation in India is expected to rise above the Reserve Bank of India’s (RBI) targeted goal of 5.4 percent in the fiscal year 2017-18, given the more hawkish stance of most Monetary Policy Committee (MPC) members in the latest meeting minutes.
Most members were concerned about the trend reversal in food inflation, rigid core inflation, and second round impact of higher house rent allowance under the civil servant wage increase. However, there were two contrasting views. Board member Dholakia appeared dovish as he noted benign core inflation dynamics due to likely weaker pass through of non-core inflation to core inflation.
On the other hand, member Patra sounded hawkish and called for a pre-emptive 25 bps rate hike on the view that core inflation will likely run ahead of headline inflation through FY2018. On aggregate, the minutes highlight a neutral-to-hawkish undertone.
"We concur with the upside risks underscored by the MPC and expect inflation to rise to 5.4 percent in FY2018 from 4.6 percent in FY2017. We continue to expect a status quo on rates in FY2018," ANZ Research commented in its recent report.
