“At 7.8% last month, inflation might have reached its peak. We may have some more inflation numbers and in September, it could be over 7%, but the average inflation for the full year could be now around 6.5% or so as per our current projections,” says Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.
Coming to the measures taken by the government to calm down inflation, there is talk that more measures like duty changes in steel, excise cut in fuel, may be taken. How do you see the direction of the move?
I think these are good steps. Inflation has been hovering at significantly higher levels. The overall estimate is that these measures could have a 30 bps downward impact on inflation. Obviously, the fiscal deficit could increase from the current levels of 6.7- 6.8%. The total number of revenue implications as the Finance Minister has pointed out would be around Rs 1 lakh crore. There are doubts in the market about how to mobilise this amount.
At this point of time, I would like to say that the government has not said anything about the borrowing. My sense is that if the government announces further expenditure rationalisation measures, then there could be some impact on the borrowing. But how are they going to do it? There are several ways to manage these borrowings and RBI can be best seen managing the government borrowing programme with the least destruction of earnings.
How much probability is there that the peak of inflation may already have been made and there is a hypothesis around that saying that gradually the numbers may start to normalise as global supply chains and all of that comes back into place?
There has been a correction in the commodity price cycle from the multi-year highs. Crude is yet to settle down to lower levels but my sense is that if demand remains an issue, prices cannot stay so high for a longer period of time.
If this is the case and if the prices actually come down, that will also be good for the market and the interest rates. Regarding inflation, in the first half of the current fiscal year, inflation numbers could be above 7%; in the second year, it should move down to 6.5% and if everything goes right, as per current indications the inflation rate could be closer to 6% or lower than that in March 2023.
At 7.8% last month, inflation might have reached its peak. We may have some more inflation numbers and in September, it could be over 7%, but the average inflation for the full year could be now around 6.5% or so as per our current projections.