Although the markets will indeed be turning to the Reserve Bank of India’s (RBI) view on growth and pricing for guidance, the central bank is largely expected to increase its main lending rate by around 35 BPS on Wednesday as inflation keeps hovering well above the acceptable range.
Inflation, which fell to 6.77 percent in October but has been well above the higher end of the Reserve Bank of India’s 2 to 6 percent tolerance range throughout the year, remains too high, according to reports that have come out. Upcoming policy decisions will be heavily influenced by the RBI’s forecast, which will be announced together with the rate setting.
The latest decline in the price of crude oil on an international scale still needs to be represented in domestic prices. Brent crude has been trading at about 83 US Dollars per barrel, down from its peak of 139 US dollars in March. It has decreased in 6 of the past seven months. Despite reduced oil prices globally, Indian pump prices have been constant as of May this year (2022) and will not have any immediate effects on domestic inflation only if they decrease.
The Monetary Policy Committee of the Reserve Bank of India forecasted retail inflation at around 6.7 percent and Gross Domestic Product growth of 7 percent for FY 2022–23 in its most recent policy statement on the 30th of September. It stated that its forecasts were centered on the premise that the average price of the crude oil basket of India would be about 100 US Dollars per barrel for the 2nd half of the year, albeit that expectation may change now that prices have dropped.
Over 2-3rds of India’s oil needs are imported, and changes in the price of crude oil on the world market directly affect the nation’s trade as well as present account balances, in addition to its currency as well as domestic inflation. More than anticipated food prices could offset reduced energy prices.
Investors anticipate a minimum of 2 more rate increases in the current cycle, such as the one on Wednesday, after the Reserve Bank of India increased rates by a total of 190 BPS since its 1st unexpected mid-meeting increase in May.