The Signal (weekly highlights)

1. Economists expects 25-50 bps rate hike in June MPC meeting

Economists see a 25-50 basis points (bps) rate hike in the upcoming meeting of the Monetary Policy Committee (MPC) in June 2022. According to them, the latest MPC minutes have reinforced the necessity to frontload withdrawal of policy accommodation amid increasing risk of high inflation. ICRA’s chief economist Aditi Nayar opined that high inflation expectations may lead to repo rate hike to pre-pandemic level of 5.15 per cent by August 2022.

There is a high likelihood that the MPC will raise the repo rate by 40 bps and 35 bps, respectively, over the next two policies to 5.15 per cent.

2. UN projects India’s GDP growth for 2022 at 6.4%

The United Nations (UN) has projected India’s real GDP growth for calendar year 2022 at 6.4 per cent. As per the UN, higher inflationary pressures and uneven recovery of the labour market are likely to curb private consumption and investment.

Higher inflation pressure and uneven recovery of the labour markets is likely to curb private consumption and investment the  UN projects India’s GDP to grow at 6.4% in 2022 well below 8.8% in 2021.

3. Domestic LPG price hiked for second time in May

The price of 14.2 kg domestic liquefied petroleum gas (LPG) cylinder has been increased by Rs.3.5 with effect from 19 May 2022. This is the second hike in cylinder prices this month. Earlier, on 7 May 2022, cooking gas prices were hiked by Rs.50 per cylinder. Since April 2021, prices have risen by Rs.193.5 per cylinder.

The rise in inflation was broad-based. At the all-India level, inflation in the food & beverages group rose to 8.1 per cent in April 2022 from 7.5 per cent in March 2022.

4. FDI continues to rise despite heavy selling by FPIs

Despite heavy selling by foreign portfolio investors (FPIs) in recent times, foreign direct investment (FDI) has been rising annually. During the last year, services and manufacturing sectors accounted for a major share of FDI, according to the Reserve Bank of India (RBI). However, net FDI moderated to USD 39.3 billion in 2021-22 from USD 44 billion a year ago, due to higher outward investment by Indian entrepreneurs and repatriation by foreign investors.

Government has recently undertaken a number of reforms across sectors. Foreign Direct Investment inflows bring international best practices and latest technologies which facilitate in skill development, export promotion and improvement of overall competitiveness of economy leading to overall economic growth and development in the country.

5. WPI inflation rises to 15.1% in April 2022

Wholesale price inflation, measured by the WPI, rose to 15.1 per cent in April 2022 from 14.5 per cent in March 2022. Inflation in the manufactured products group rose to 10.9 per cent in April 2022 from 10.7 per cent in March 2022. Inflation in primary article prices inched down to 15.4 per cent from 15.5 per cent in March 2022, but that in power & fuel climbed to 38.7 per cent from 34.5 per cent.

Global, inflation has emerged as a major risk to economic recovery and has hit household budgets, prompting central banks across the world to aggressively increase interest rates.