Despite retail inflation rising to 6.01 percent in January, and likely to remain elevated till April, a foreign brokerage report expects RBI to leave key policy rates unchanged throughout the first half of 2022. Swiss brokerage UBS Securities India sees the policy changing only from the second half wherein the Monetary Policy Committee (MPC) may deliver a 50 basis points hike in the second half starting from August.

The official data released on February 14 showed that retail inflation spurted to a seven-month high in January at 6.01 percent, but lower than the previous high of 6.26 percent in June 2021. Wholesale inflation stayed in double-digit at 12.96 percent.

Also read: Retail inflation spikes to 7-month high of 6.01% in January

The government also revised upwards the CPI inflation for December 2021 to 5.66 percent from 5.59 percent. Reserve Bank Governor Shaktikanta Das had said the rise in inflation was primarily due to statistical reasons, especially in the third quarter of FY22, and the same base effect will play in different ways in the coming months.

Das had said the RBI has already factored in high inflation numbers in its recent bi-monthly monetary policy, and retail inflation in January above 6 percent "should not surprise or create any alarm." RBI expects retail inflation to soften to 4.5 percent in the next fiscal year, while projecting it at 5.3 percent for 2021-22, and based on this it had left all the key rates unchanged and retained its dovish stance.

Also read: Wholesale inflation eases to 12.96% in Jan; food prices spike

Tanvee Gupta-Jain, chief economist at UBS Securities India, said the latest numbers are on expected line and the uptick was largely driven by an adverse base effect and continued supply side constraints. Core inflation remained sticky at 6 percent versus 6.1 percent in the previous month, reflecting gradual pass-through of higher input cost to the consumers. She also said price pressure in rural areas is higher at 6.1 percent than in urban areas, which was marginally lower at 5.9 percent.

She expects retail inflation to remain elevated in the 5.5-6 percent range until April given the massive spike in commodity prices, especially oil, supply side disruptions and rising input costs pressures, which will keep inflation higher over the coming months.

Also read: Dollar might appreciate further; inflation in India could inch up: Standard Chartered

Though the CPI will remain elevated until April 2022, before easing towards 5 percent from June quarter, when oil prices are likely to begin to fall on rising supplies, she expects the MPC to keep the repo rate unchanged till first half of FY23, before delivering a first hike in the August policy and a cumulative increase of 50 basis points hike in the second half .

She said UBS expects that over the next two-three months, supply is likely to remain constrained and the macro backdrop, given the China stimulus, will remain supportive and a material impact of crude prices falling will be visible over next 6-12 months.