Higher retail inflation implies more rate hikes

The core retail inflation is on an upward trend due to the rising fuel price scenario. The retail CPI inflation (consumer price index) stood at 4.87 per cent for the month of May, touching a 5-month high mark.

Further, the industrial production declined to 3.2 per cent, touching a 7-month low in May. All these indicators give room for more rate hike in the economy aiming to reduce the liquidity.

Analysts expect the inflation to remain range bound and impede a possibility of a rate cut, going forward. The higher food prices due to rise in MSPs will help maintain the current level of inflation. Further, we may see a rate hike in the coming monetary policy due to a host of factors like the rise in oil prices and a rise in MSPs.

RBI in a bi monthly policy held in June increased the policy rate by 25 to 6.25 per cent. However, the coming monetary policy review in August may see a rate hike in the range of 25 bps.