NEW DELHI: The Reserve Bank of India (RBI) expects inflationary pressure to ease further and has retained its inflation outlook for the current fiscal at 6.7%. In April, it had projected inflation at 5.7% for FY 23 and then in May increased it to 6.7%. The apex bank has been given the mandate of keeping inflation level in the range of 2% to 6%.
"There has been some let up in commodity prices. Prices of edible oils are likely to ease... Supply-chain pressures are on an easing trajectory. Household inflation has eased but remain elevated. With the assumption of normal monsoon, inflation is projected at 6.7% in FY23 with Q2 at 7.1%, Q3 at 6.4% and Q4 at 5.4% with risks evenly balanced," RBI Governor Shaktikanta Das said.
He projected the CPI inflation for the first quarter of FY 24 at 5%.
For the last three months, the retail inflation has been above 7%. It may be recalled that it had touched an eight-year high in April at 7.79%.
As per the monetary policy committee statement, headline inflation has recently flattened and the supply outlook is improving with some easing in the global supply constraints.
"The MPC, however, noted that inflation is projected to remain above the upper tolerance level of 6 percent through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second round effects," the committee noted.
Meanwhile, the MPC increased the repo rate by 50 basis points to 5.4% with immediate effect. In a bid to contain inflation, the central bank has raised the repo rate by 140 basis points since May this year. The repo rate before Covid pandemic hit the country was at 5.15%.
In addition, RBI also retained the GDP growth outlook for the current fiscal at 7.2%. As per the Governor, despite the global economic situation, the Indian economy is showing signs of broadening.
"The RBI has clearly taken an aggressive position on inflation even though there is no change in the forecasts on both inflation and growth. The confidence in growth gives it a strong justification for attacking inflation in a big way. We may expect another 50 bps hike during the year in this situation as inflation in the next two quarters will remain above 6%. The RBI’s commentary on growth is also reassuring as growth seems to be on the stable path notwithstanding the disturbances in the global arena," Madan Sabnavis, Chief Economist, Bank of Baroda said.