MUMBAI: The Reserve Bank of India on Wednesday delivered a twin-blow to hard-pressed Indian households. As if the 25 bps repo rate hike, which will increase EMIs, isn’t enough, the rate-setting committee confirmed worst fears that prices of goods and services will rise marginally higher than previously estimated.
In its second bi-monthly statement for FY19, the Monetary Policy Committee (MPC) revised the inflation forecasts to 4.8-4.9 per cent (earlier prediction was 4.7-5.1 per cent) for the first half of this fiscal and to 4.7 per cent in the second half from 4.4 per cent projected earlier.
“Actual inflation outcomes since the April policy have evolved broadly on the lines of the projected trajectory. However, there has been an important compositional shift. While the summer momentum in vegetable prices was weaker than the usual pattern, there was an abrupt acceleration in CPI inflation excluding food and fuel,” the statement said.
Volatility in crude oil prices — which shot up 12 per cent in two months from $66 a barrel in April to $74 now — rise in domestic household inflation expectations, which could feed into wages and input costs and the impact of implementation of house rental allowance by various state governments were some of the key upside risks the MPC took note of.
The committee also felt that IMD’s forecast of normal monsoon this year augurs well for agriculture sector and that a normal, well-distributed monsoon may help keep food inflation benign. In a post-policy media interaction, RBI Governor Dr Urjit Patel said, the forecast of a normal south-west monsoon augurs well for agriculture sector, as input cost pressures are firming up and as cost of farm output is going northwards. However, he noted that the impact of a revision in MSP formula for kharif crops wasn’t possible to assess at this stage due to the absence of adequate details.
Meanwhile, GDP growth forecasts remained unchanged at 7.4 per cent for FY19, with growth likely to be 7.5-7.6 per cent in the first half and 7.3-7.4 per cent in the second half. Patel said investment activity was recovering well and could receive a further boost from resolution of stressed assets, while rural consumption demand remained strong.