INSUBCONTINENT EXCLUSIVE:
SBI has said in its report that RBI will have to intervene if inflation goes on risingAs retail inflation reached a six-month high of 6.30
per cent in May 2021, the State Bank of India (SBI) in a report has noted that localised lockdowns, rising food prices and the second wave
of the Covid pandemic have dislocated supply chain even in rural areas. This, it said, is going to manifest in rising prices of essential
commodities and cumulatively therefore, all these factors are going to spur core inflation and won't leave the Reserve Bank of India (RBI)
with any other option but to check price rise. The country's biggest lender also said that the rise in retail inflation was a matter of
concern and even small items are showing disproportionately larger increases. "Both core wholesale price index and core consumer price
index (CPI) are positive and highly correlated, and the relentless increase in global commodity prices will only imply that core CPI is
unlikely to correct anytime soon
In the coming months, domestic inflation trends are likely to raise anxiety levels in the RBI and the Monetary Policy Committee (MPC)
Driven by several global and domestic factors, inflation may remain elevated in the coming months," the SBI has noted in its
report.Specifically, the faster than anticipated and robust recovery in some of the advanced countries is likely to exert upward pressure on
international commodity prices, including oil."Once that happens on a durable basis, it would be impossible for the MPC to look through
inflation pressures and remain supportive of growth, given its primary mandate of ensuring price stability
Therefore, repairing the supply chain remains the top priority on which the RBI has little control and hence the Government of India needs
to step in a big way," the report added further.If the RBI has to ultimately increase interest rates or change its stance to combat
inflation, it may impact any incipient signs of recovery; on the other hand, being a mute spectator can seriously impair RBI's credibility
in fighting inflation, the SBI has cautioned."We expect a status-quo in August
We believe RBI would still try to find a marriage of convenience of regulatory and developmental measures and monetary policy in August
The die has been cast, but the RBI can still hold out with a firm message of ratcheting up of inflationary pressures in August policy
statement," the report concluded.
