Rise in bond yields post higher inflation number

The higher crude oil prices could have negative implications on the economic growth of the country in the coming quarters.

Dec 13, 2017 11:12 IST India Infoline News Service

One of the major components of India's import bill is crude oil, which in  the last two quarters has seen a significant rise of around of ~ 45%. This has significantly raised concerns of rising inflation, which touched a 15-month high in November 2017 (CPI: 4.88%), adding pressure on the policymakers in getting interest rates down.

Adding to the rise in crude oil prices, the hardening house inflation and rising core prices is likely to impart further upside risks to the baseline inflation trajectory.

Other than inflation, the higher crude oil prices could have negative implications on the economic growth of the country in the coming quarters. It may pose a threat on fiscal and current account deficit. 

As per IIFL Research, RBI will maintain a long pause on the policy rates given the mounting inflationary pressures, concerns over fiscal slippage and on-going policy normalization by global central banks. Effectively, there are no chances for rate cuts. In fact, the central bank might adopt a relatively hawkish tone in the months ahead. However, can’t rule out the possibility of policy reversal during next fiscal.

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