New Delhi: Retail Inflation has been hardening in recent times due to rise in prices of petroleum products and is set to rise further towards the second half of the fiscal. Inflation could average 5.1 % this financial year compared to 3.6% last year, says an HSBC report.

Global financial major HSBC believes that higher oil prices, a weaker rupee, higher MSPs and more currency in circulation could impact the inflation going forward.

Given global factors like rising in oil prices, Fed rate hikes and likely fall in USD liquidity will impact India’s macroeconomy, while domestic factors like higher agriculture Minimum Support Prices threaten to raise inflation.

“We believe it could average 5.1 % in 2018-19, compared to 3.6 % last year,” HSBC said in a research note.

The report further noted that “with appropriate action now, it is likely to inch lower in 2019-20, and even fall back towards the RBI’s 4 % target by the second half of 2019-20”.

Reversing the declining trend of three months, retail inflation inched up to 4.58% in April and may prompt the Reserve Bank to harden stance at the monetary policy review next month.

The Wholesale Price Index-based inflation too rose to 3.18 % in April, mainly on account of a spike in fuel prices, as per inflation data released by the government.

On RBI’s monetary policy stance, the HSBC report said, the RBI has enough reasons to raise rates by 50 bps in this cycle.

“We are now pencilling in two back-to-back 25 bps rate hikes at the August and October 2018 meetings, respectively,” it said.

A further hike in 2019 will depend on the national election outcome, and health of India’s banking sector, and strength of world growth, US dollar, US rates and oil prices, the report said.

In its first bi-monthly monetary policy for 2018-19, RBI has left the repo rate unchanged at 6%. The MPC has maintained status quo for the four consecutive meetings since August last year.