Rising Inflation May Push RBI To Continue With Neutral Stance For Longer Duration: SBI Research

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New Delhi: The soaring figures of retail inflation in September could force the Reserve Bank of India (RBI) to continue with neutral stance for a longer duration, stated SBI research, adding that "first rate cut could be based on growth, and need not be inflation.

"The research stated on the rationale that if inflation remains sketchy in the coming months, the apex bank will consider growth as the criteria for rate cut."Looking ahead, evolving food prices will determine domestic inflation, though we understand an average print in the range of 4.5-4.6 per cent for FY'25 (with an upside bias) looks more plausible, despite the outlier reading of today," the report added.

The Consumer Price Index (CPI)-based inflation rate for September reached 5.49 per cent from 3.65 per cent in August, reflecting an uptick primarily due to higher food prices.

In September, the food and beverage inflation increased to 8.36 per cent, from 5.30 per cent in August and 6.30 per cent in Sep'23. Within food, vegetable prices increased significantly and contributed 2.34 per cent to overall inflation.Rural and urban food inflation stood at 9.08 per cent and 9.56 per cent, respectively, suggesting that food prices continue to pose a challenge for households. 

The spike in food inflation was driven largely by elevated prices in specific food categories."We find the elevated Rural inflation, continuing to be higher than the Urban inflation, as also the sharpening of gap between rural and urban inflation trends (7th month in a row) resulting in rural household prices higher than urban counterparts has driven the overall inflation," the SBI research added.

In its recently concluded Monetary Policy Committee (MPC) meeting, the central bank has decided to keep the policy repo rate unchanged at 6.5 per cent for the 10th consecutive time.The standing deposit facility (SDF) rate remains steady at 6.25 per cent, while the marginal standing facility (MSF) rate and the bank rate are both maintained at 6.75 per cent.

At the time of announcement of policy rates, the RBI governor Das had said that the focus of the regulator remains on achieving a stable inflation rate, aligned with its long-term target, while fostering sustainable economic expansion. However, the RBI changed its stance on monetary policy to neutral.