India’s government just put in place a new budget, and while the country’s central bank is doing everything in its power to fight inflation, it seems the government is keen to make the problem worse.
From Societe Generale’s Glenn Maguire:
We find that the plans to increase spending by 3.4% and the boosting of incomes via exemptions for individual tax payments, reduced costs for housing and a 1.45trn allocation for subsidies an unusual policy choice at this juncture. The actual budget outcome will be strongly pro-cyclical. Indeed, it is one that will put additional pressure on the RBI to contain price inflation.
And those subsidies may actually be higher than first anticipated. Societe Generale projects that with oil prices rising, oil subsidies will be higher and the total amount of subsidies will actually be closer to 1.6 trillion rupees ($35 billion).
Photo: Societe Generale
India’s central bank has already been doing everything it can to fight inflation, raising rates repeatedly in an effort to slow food and other cost inflation within the country. Now it looks like the RBI will have to adjust key rates for the 8th time since January 2010.