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Consumer goods companies' planned price hikes could keep underlying inflation under pressure despite the Reserve Bank of India's relatively benign inflation outlook, according to a post-policy note by Elara Capital.
The brokerage said it will continue to monitor the pass-through of elevated input costs to inflation as companies increase prices to offset higher expenses. "We shall continue to monitor the passthrough of elevated input costs to overall inflation as companies take price hikes to pass on impact of elevated input costs. Recent management commentary from the consumer good firms also indicate potential upside in core inflation," Elara Capital said. The brokerage expects the RBI to maintain the status quo on interest rates throughout calendar year 2026, with the possibility of a 25 basis point rate hike in the first quarter of calendar year 2027 (Q4FY27) if inflationary pressures intensify. It also said the central bank is likely to look through a potential El Nino-led rise in food inflation unless it becomes entrenched. "We expect the RBI to look through the El Nino led potential uptick in food inflation unless it becomes entrenched. Moreover, with peak conflict behind us, the upside to energy inflation looks limited," the report said. In the latest policy announcement on Wednesday RBI retained a neutral policy stance and revised its projection for core inflation to 4.3 per cent from 4.7 per cent earlier, while projecting headline CPI inflation at 5 per cent and marginally raising its FY27 GDP growth forecast to 6.7 per cent, broadly in line with the brokerage's estimates. The report also cautioned that the future policy actions of major developed market central banks, particularly the US Federal Reserve and the Bank of Japan, could influence the RBI's policy path and eventually compel it to raise rates to maintain interest rate differentials, especially as several Asian peers have already tightened monetary policy. The RBI on Wednesday also decided to keep the benchmark repo rate unchanged at 5.25 per cent while retaining its 'neutral' policy stance, citing the need for greater clarity on the inflation trajectory amid uncertainties surrounding the southwest monsoon, El Nino, geopolitics and global trade policy. (ANI)
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