You are here: Home » Companies » News
Business Standard

RBI's easy policy under pressure as companies worry about rising inflation

Companies have turned increasingly vocal about their inflation concerns, setting the stage for raising prices.

Topics
Reserve Bank of India | Inflation | India Inc

Vrishti Beniwal | Bloomberg 

Photo: Reuters
Photo: Reuters

A clutch of Indian have turned increasingly vocal about their concerns, setting the stage for raising prices that could test the central bank’s resolve to keep borrowing costs lower for longer to support the economy.

from Hindustan Unilever Ltd., the Indian arm of Unilever Plc, to Nestle India Ltd. have pointed to profit-squeeze from higher input costs and supply chain strains, while the likes of Dabur India Ltd., a maker of packaged honey and hair oil, and Britannia Industries Ltd. have already passed on some of the increased costs to consumers.

That could see India’s headline snap a four-month slowing trend in October, with data due later Friday expected to show the print inching up to 4.4%, according to the median estimate in a Bloomberg survey of economists. Consumer prices are seen accelerating further as a higher base of comparison from a year ago fades.

Price Uptick

Bloomberg

“There is no substitute for price increases in an environment like this,” Varun Berry, managing director at Britannia, told analysts in a post-earnings call this month. “So we have actioned price increases.”

While several central banks have responded to price pressures by raising interest rates, the has stuck with its inflation-is-transitory narrative as it sees the headline number edging lower on higher food output after a bountiful monsoon.

The expected food price-led moderation in India’s was cited by Governor Shaktikanta Das as reason enough to continue with the easy monetary policy to support what he called a “delicately poised” economic recovery. The RBI’s rate-panel is scheduled to meet early next month to review policy settings.

Although the central bank sees inflation ending at 5.3% for the year ending March 2022, well within its 2%-6% target range, economists see the headline number hiding persistent price pressures.

“The year-on-year estimates of retail inflation mask the real inflationary undercurrent prevailing in the economy due to statistical base effect,” said Jay Shankar, chief economist at Incred Capital in Mumbai. “Corporate results continue to underline the raw material inflation led hit on margins, and is likely to persist for a few more quarters due to the slack in the economy.”

What Bloomberg Economics Say...

“Given the prospect of inflation heating up again and the recovery gathering momentum, we see a risk that the RBI raises rates a bit sooner than our current expectations for a reverse repo rate hike in April 2022 followed by a policy repo rate increase in February 2023.”

-- Abhishek Gupta, senior India economist

Prime Minister Narendra Modi’s administration last week cut an excise levy on diesel and gasoline, with an aim to check inflationary pressures and allow the central bank more room to keep borrowing costs low. The move, according to economists including those at IDFC First Bank Ltd. and Yes Bank Ltd., would help lower consumer price inflation by 10 to 14 basis points.

Still, a surge in pent-up demand from Indians emerging out of lockdowns could see businesses regain pricing power that could drive inflation faster.

“A substantial rise in prices charged for the provision of services in India had no detrimental impact on demand,” said Pollyanna De Lima, economics associate director at IHS Markit. “That said, service providers were concerned that persistent inflationary pressures could deter growth in the coming year.”

Those are among risks, which Incred’s Shankar said could turn the RBI hawkish sooner than currently being priced in by markets.

“Regardless of near-term inflation prints, the market is focused on the spillover impact of rising global commodity prices and potential Fed QE tapering on India’s monetary policy,” said Anubhuti Sahay, an economist at Standard Chartered Plc.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, November 12 2021. 06:42 IST
RECOMMENDED FOR YOU
.