RBI Rate Hike Chances Increased Over 6% Retail Inflation

India's retail inflation is projected to cross the RBI's upper tolerance limit of 6% in October, according to a Business Standard poll of economists, raising expectations of another interest rate hike in December. Estimates range between 5.9% and 6.11%, with a median projection of 6.05%, marking a potential breach of the inflation threshold for the first time since October 2024. The increase is primarily driven by rising food prices, an unfavorable base effect following last year's GST rationalisation, and higher energy and industrial metal prices. Core inflation is also expected to rise from 4.3% to 4.6%, while the weaker rupee is adding to imported inflationary pressures. The Bank of Baroda's Essential Commodities Index recorded an 11.1% year-on-year increase in October, highlighting the growing cost pressures. Economists anticipate a possible 25-basis-point rate hike at the December 2-4 Monetary Policy Committee meeting, following the RBI's previous 25-bps increase that took the policy rate to 5.5%. However, companies are attempting to absorb higher input costs rather than fully passing them on to consumers to protect sales volumes. Going forward, food price movements, weather conditions, domestic agricultural output and global commodity trends will remain critical determinants of India's inflation trajectory and the RBI's monetary policy stance.