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The Reserve Bank of India is unlikely to react yet to multi-month high retail prices as the economic recovery remains its prime focus amid the deadly second wave of the pandemic, according to Economic Times. RBI To remain focus on growth even as inflation breaches tolerance band.
The annual retail inflation rate rose 6.30% year-on-year in May, up from 4.29% in April and compared to the analysis of 5.30%. The wholesale price inflation rate rose 12.94%, which is the highest in at least two decades.
According to the Economic Times report, there is a broad-based increase in CPI inflation but it still is not driven by demand and that gives the RBI some leeway. They will continue to wait and watch as a rate hike is out of the question for now,”
India’s economy grew 1.6% in the March quarter compared with the same period a year earlier, but that was before a massive second wave of infections hit the country which prompted fairly stringent lockdowns across most states causing another round of job losses and a significant dent to demand. There is no direct reaction by the RBI about inflation.
In its last policy review, the RBI warned that high energy prices could stoke inflation. It also cut its GDP growth forecast to 9.5% from 10.5% for the current fiscal year.
India’s benchmark 10-year bond yield rose to an over six-week high of 6.04% following the CPI data as traders worry the RBI will need to react to inflation sooner rather than later after it breached the RBI’s 2%-6% mandated band.
