SBI Report Predicts Inflation Trends and Global Market Impact

SBI Research forecasts India's retail inflation could exceed 6% in October-November before stabilizing, with improvements due to better food supply and monsoon recovery. RBI awaits clearer inflation trends for policy changes. Global implications noted from US Federal Reserve actions affecting long-term Treasury yields.

According to a recent SBI Research report, India's retail inflation may temporarily surpass the 6% mark in October and November, before easing to approximately 5% by the fourth quarter of FY27. The report anticipates an inflation rise to 4.7% in August, up from 4.45% in July.

Improving food supply, due to a recovering monsoon that reduced the rainfall deficit to around 13% from nearly 40% in June, is expected to help control inflation. A positive Indian Ocean Dipole could also counteract the effects of El Nino. Despite some regions' below-normal rain, Kharif sowing is only 2% below the previous season, suggesting enhanced irrigation facilities.

The report also highlights a potential lower inflation rate in the fourth quarter than currently forecasted. RBI Governor Sanjay Malhotra indicated the need for more clarity on inflation trends before any policy rate adjustments. While inflation appears to be normalizing, Malhotra prefers to gather more evidence for future monetary policy decisions.

The SBI report expresses concerns over central bank communication, suggesting recent actions might outweigh forward guidance. It mentions measures like variable rate reverse repo operations and the FCNR(B) deposit window as critical. On a global scale, it notes US Federal Reserve actions impacting the long-dated US Treasury yield curve, which may have broader market implications.