With inflation broadly based, the RBI has set a further 1% repo increase in FY23:

Inflation is expanding, RBI raises repo rate by 1 pc in FY23: report A can respond to rate increases up to 1 percentage point.

The entity’s research arm said it now expects average consumer price inflation in FY23 to reach 6.3 percent – above the RBI’s tolerance rate of 6 percent – as against 5.5 percent recorded in FY22.

The RBI raised its key rate by 0.40 per cent in a surprise move last week and maintained a tolerable position. Analysts said the move was prompted by fears of a sharp spike in April data.

“Inflation is going to be broad-based this fiscal year, rising across food, energy and core inflation …. We expect the RBI to raise the repo rate further from 0.75 per cent to 1 per cent for the rest of this financial year,” Crisil said.

Its analysts have made it clear that the rate hike would be ineffective in reducing food or fuel inflation, but could help test the generalization of inflation by counteracting the effects of the second round.

The government must “pull its weight to control inflation”, they acknowledge, as it is a tradeoff where reducing taxes and subsidies will lead to additional financial pressures.

The firm’s Peer India rating expects the RBI to raise the repo rate to 0.75 per cent in FY23 and increase the cash reserve ratio by another 0.50 per cent.

Despite expecting inflation to come in at a higher 7 percent for FY23, the company expects lower rate growth and added that a peak will be achieved in September 2022.

Calling the off-policy growth justified, Aditi Nair, chief economist at ICRA Ratings, said, “We now have a high probability that the MPC will raise the repo rate by 0.40 per cent and 0.35 per cent to 15 5.15 per cent in the next two policies, respectively. Break. So far, we see the terminal rate at 5.5 percent by mid-2023. ” Upsana Bharadwaj, a senior economist at Kotak Mahindra Bank, said the release of the data would “intensify the pressure” on the MPC (Monetary Policy Committee) to aggressively raise policy rates, especially in the near future in terms of supply amid geopolitical tensions.

“We expect a further 0.90-1.10 percent increase in the repo rate in 2022, including 0.35-0.40 percent in the June policy. We also expect an additional 0.50 percent CRR increase to accelerate monetary policy and liquidity position,” he added.

The rise in inflation is dangerous and a frightening start to the new fiscal year, Equity Rating and Research said in a note, expecting a 1 percent increase for the rest of the fiscal year.