The September inflation of over 7.4 per cent — a five-month high — has rekindled the debate over an aggressive rate hike by the RBI when its monetary policy committee (MPC) meets in less than two months from December 5 to December 7.

The Reserve Bank of India (RBI) has raised the policy repo rate four times since May — cumulatively 190 basis points — leading to higher EMIs on home and auto loans.

The half-a-percentagepoint hike in September had led to some economists projecting that the central bank would slow down the pace of hikes in December and thereafter go on a pause mode.

But the latest inflation print and the grim possibility of prices remaining firm have led to some analysts projecting another 50 basis points (bps) increase in December.

There are others who feel that the inflation rate peaked in September and this could result in MPC settling for relatively lower amount of a 25- 35bps hike. The RBI’s policy repo rate now stands at 5.90 per cent.

SBI group chief economic advisor Soumya Kanti Ghosh said in a note that the unseasonal rains in different parts of the country, particularly in the cereal-producing states, could have a “significantly large impact” on cereal and vegetable prices, thereby leading to a rise in food inflation.

According to Ghosh, a decomposition of CPI food inflation shows it was driven by cereal products and vegetables.

The SBI report said due to unseasonal rain patterns and frequency being witnessed across major states now, a spike in food inflation may lead to inflation for December hovering above 7 per cent. It said that the quarterly average should come around 7 per cent — above RBI’s projection of 6.5 per cent.

It expects another 50 basis point repo rate revision in the December meeting.

Tanvee Gupta Jain, UBS India economist, who shares a similar view said the unseasonal rains in early October may adversely affect the summer crop yields, posing upside risks to food inflation in the near-term.

However, a favourable base effect would help headline inflation to moderate from October onwards.

"We continue to expect headline CPI inflation to average 6.7 per cent in 2022-23. In our base case, we expect the MPC to raise the repo rate by another 35 basis points to 6.25per cent in the December 2022policy review.’’

Sonal Varma and Aurodeep Nandi, economists at Nomura said: ``We forecast a35 basis point hike in the December meeting and a final 25basis points hike in February,with terminal repo rate at 6.50per cent.’’