India's Retail Inflation Forecasted to Temporarily Exceed 6%

India's retail inflation may temporarily exceed 6% in October and November before easing to around 5% by the end of the fiscal year, according to a report from SBI Research. The forecast comes after the Reserve Bank of India (RBI) Governor Sanjay Malhotra indicated that the central bank would wait for more evidence before deciding on future monetary policy decisions.

The RBI's cautious approach is due in part to recent measures taken by the US Federal Reserve, which have smoothed out the long end of the US Treasury yield curve. This has led to a decline in yields across longer maturities, including the benchmark 10-year segment.

The SBI report suggests that improving food supply conditions could help contain inflation. The monsoon has recovered after a weak start, with surplus rainfall in July and normal rainfall in August narrowing the overall rainfall deficit to around 13% from nearly 40% in June. Additionally, kharif sowing is only 2% below last season despite below-normal rainfall in some major foodgrain-producing states.

Historical trends also indicate that fourth-quarter inflation could be lower than current forecasts. The report flagged concerns over central bank communication, saying recent policy actions could carry greater weight than forward guidance.