RBI may remain hawkish till prices of commodities dip

The concerns of a global slowdown after the downgrade of the sovereign US rating, from AAA to AA+ with a negative outlook, notwithstanding, the Reserve Bank of India (RBI) may continue its hawkish stance, unless global commodity and crude oil prices soften enough to impact domestic inflation, economists and analysts said.

According to economists, stubbornly high inflation would continue to shape the central bank's monetary policy stance and any change in the stance would only happen if inflation changes its trajectory. “Inflation is still the key macro-economic challenge. We expect a rate rise in September, as inflation is close to 10 per cent and companies clearly have some pricing power. Global softening has still not shown up in Indian exports. Automobile export growth in July, for example, was still a very buoyant 33 per cent,” said Sajjid Chinoy, economist, J P Morgan.

The market would closely watch inflation data for July, which would be released next week, to get an indication of the inflation trajectory. “We would like to wait for the inflation data for the month of July, since it would reflect the trajectory, especially the data on manufactured items,” said A Prasanna, economist, ICICI Securities Primary Dealership.

Wholesale price index-based inflation stood at 9.44 per cent in June, up from 9.06 per cent in May, despite RBI raising policy rates 11 times in the last 16 months. Once revised, these figures could well be above 10 per cent.

RBI, which had scaled up its March-end inflation projection to seven per cent during the first quarterly review of the monetary policy, said inflation would moderate later this year. “A change in stance would be motivated by signs of a sustainable downturn in inflation,” RBI had said. Any movement in global commodity prices, together with how developed economies respond to it, would be crucial for India.