Falling inflation limits need for rate hikes: S&P

New Delhi: S&P Global Ratings on Tuesday said core inflation in India has been declining sequentially, and an elevated 6.25 percent policy rate limits the need for further rate hikes.

The Reserve Bank of India (RBI) has increased the short-term lending rate by 225 basis points since May last year to contain inflation, mostly driven by external factors, especially global supply chain disruption, following the Russia-Ukraine war outbreak. The policy rate now stands at 6.25 percent. The RBI's rate-setting panel - Monetary Policy Committee (MPC) - will decide on the interest rate on Wednesday.

"In India, core inflation has been elevated for longer; however, it eased sequentially in the second half of 2022. An already elevated 6.25 percent policy rate limits the need for further increases," S&P said in a report. The RBI has been tasked to ensure that retail inflation remains at 4 percent with a margin of 2 per cent.

However, external factors have led retail inflation to remain above the upper tolerance limit for 11 months in a row. In November 2022, the retail inflation came below the 6 per cent level and declined further in December at 5.72 per cent.