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Published: Mar 02, 2023
Updated: Mar 02, 2023

RBI may hike Repo Rate as record-high temperatures hit wheat production in India

The Indian Reserve Bank (RBI) could consider increasing the Repo Rate due to the record-high temperatures experienced in February. According to domestic rating agencies, the extreme heat could impact wheat production, which has already suffered a 10% increase in retail prices since December and January.

February 2023 was the hottest month in 122 years

The Indian Meteorological Department reported that February 2023 was the hottest month in 122 years, and all citizens were advised to prepare for even hotter and drier weather conditions. The situation could lead to further hikes in the price of wheat, which could trigger inflation and lead to a monetary policy response from the RBI.

Heatwaves likely during March-May

Heatwaves during March-May are likely in most parts of India, except for the northeastern States, Jammu and Kashmir, Uttarakhand, Himachal Pradesh, Kerala and coastal Karnataka, according to an accompanying forecast map by the department.

Accentuating the heat is the lack of rainfall. “Below normal rainfall is most likely over most areas of northwest India, west central India and some parts of east & northeast India. Normal to above normal rainfall is likely over most parts of peninsular India, east central India and some isolated pockets of northeast India,” the IMD communique noted.

Heat May hit wheat production

Punjab, the largest wheat-producing state in India, experienced temperatures 4-5 degrees Celsius higher than usual, which could affect the crop yield and quality. If this trend continues, it could have negative implications for the country's food security and economic growth.

Forecast could fuel RBI's willingness to further hike repo rates

RBI's decision to hike the Repo Rate could depend on the impact of the extreme heat on wheat production and inflation. As the situation unfolds, policymakers will need to monitor the situation closely to ensure the country's macroeconomic stability and mitigate any adverse effects on its citizens' well-being.