India: inflationary pressures continue to rise - BNPP

Johanna Melka, Research Analyst at BNP Paribas, notes that in June, India’s consumer prices rose 5% compared with the same period last year, which reflects the rise in transport costs (driven up by higher international oil prices) as well as the increase in house prices (+8.4% year-on-year).

Key Quotes

“Although inflation is still below the monetary authorities’ target of 4% +/- 2 percentage points, the central bank raised its benchmark rate by 25 basis points during the latest monetary policy committee meeting, in June. This rate increase, the first since 2014, occurs at a time when the rupee is under pressure, having depreciated by 7% since the beginning of the year.”

“As a net oil importer, the country has not been spared from the wave of mistrust by foreign investors since April, even though growth prospects are still looking upbeat and external vulnerability is moderate. Foreign reserves have reached nearly USD 406 bn at the beginning of July, the equivalent of 1.5 times its short-term external financing needs.”