Sell-Side Views Post India CPI

Some sell-side views post yesterday's India CPI beat. Not surprisingly, analysts see it as a hawkish outcome for the RBI outlook.

• Barclays: Today's inflation data came as another shock, especially in the context of the governor's quite hawkish remarks at the MPC meeting on 8 February, and while it validates the RBI's core hawkish stance, it goes against its inflation trajectory. While there is a possibility of February inflation being above 6% (we are tracking February CPI at 6.3%), the direction of travel on CPI inflation is still lower, not higher. As such, while risks of another rate hike in April have risen after today's print, we do not believe it will materially alter the terminal rate, since the bulk of the upside was driven by food, not by core inflation.
• J.P. Morgan: With the RBI having raised rates by 300 bps over the last year and the Governor indicating at last week’s review that the latest 25 bps hike gave it “elbow room to weigh all incoming data and forecasts to determine appropriate actions and policy stance, going forward,” we had expected it was the last hike in the cycle. However, our expectation was under the presumption “core inflation momentum begins to slowly roll-off, the Rupee is not under pressure and there is no fresh inflationary shock”. Instead, with core inflation showing no signs of rolling off, today’s headline surprise is likely to keep CPI above the RBI’s forecasts, and the Dollar strengthening again in recent days, the odds of another 25 bps hike at the April review have increased sharply, in our view.
• Goldman Sachs: Headline CPI inflation for January increased to a three-month high of 6.5% yoy (from 5.7% yoy in December), and exceeded the upper limit of the RBI’s inflation target band of 2 – 6% yoy. The reading was above expectation. Food inflation increased to 6.2% yoy (from 4.6% yoy in December) mainly driven by an increase in cereals inflation to 16.1% yoy (the highest since June 2013). RBI core inflation[1] which excludes food and fuel inflation remained sticky at 6.1% yoy in December. We forecast headline CPI inflation at 6.2% yoy in Q1 CY23. We continue to expect the RBI to hike 25bp further in the April meeting, on sticky core inflation and upside to food inflation given reversal in vegetable prices, which would take the peak repo rate to 6.75% by April-2023.