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Wednesday, August 10, 2022

RBI Policy: FY23 CPI inflation forecast retained at 6.7%

Informist, Friday, Aug 5, 2022

 

NEW DELHI – The Reserve Bank of India today retained its retail inflation forecast for the current financial year started April at 6.7% as geopolitical shocks continue to keep prices high.

 

“Spillovers from geopolitical shocks are imparting considerable uncertainty to the inflation trajectory,” the RBI’s Monetary Policy Committee said in its resolution.

 

The central bank’s rate-setting panel raised the policy repo rate by 50 basis points to 5.40% today in an effort to keep a check on inflation. This is the third time in four months, the MPC has raised the repo rate.

 

CPI inflation, which posted a print of 7.01% in June, averaged 7.3% in the first quarter of 2022-23.

 

The Reserve Bank of India retained the full year CPI projection but revised its forecasts for Jul-Sep and Oct-Dec.

 

The RBI cut projection for Jul-Sep CPI inflation by 30 bps to 7.1% but raised the projection for Oct-Dec by 20 bps to 6.4%. It retained the projection for Jan-Mar at 5.8%.

 

For Apr-Jun of 2023-24, the RBI projected CPI inflation at 5.0%.

 

As the CPI averaged above 6% in two consecutive quarters already, if its projection for Jul-Sep were to come true, the Monetary Policy Committee would have failed in meeting the inflation mandate.

 

The RBI will be deemed to have failed in its mandate if CPI inflation remains above 6% for three consecutive quarters.

 

The new projections are based on the assumption of a normal monsoon this year and an average price of $105 per barrel for the Indian crude oil basket in 2022-23.

 

The projections, however, do not take into account the impact of the 50-basis-point hike in policy repo rate today.

 

 

The past rate hikes have, however, been factored into the new CPI projections, RBI Governor Shaktikanta Das said at a post-policy press conference. 

 

Das noted that at this point in time, there are “signs” that CPI inflation has peaked, and is expected to moderate in Jan-Jul.

 

“But inflation still remains at uncomfortably high level, and therefore monetary policy has to act,” he said.

 

In its resolution, the rate-setting panel said that food and metal prices have come off their peaks recently. “Rising kharif sowing augurs well for the domestic food price outlook,” the MPC said.

 

India’s annual inflation based on the Wholesale Price Index had posted a print 15.18% in June. It was 15th straight month that WPI inflation remained in double digits.

 

Since manufactured products is a component of WPI, depreciation in rupee adds to price pressures of imported components.

 

“The appreciation of the US dollar can feed into imported inflation pressures,” the MPC said.

 

Firms polled in the Reserve Bank of India’s enterprise surveys expect input cost pressures to soften across sectors in Oct-Mar, the MPC’s resolution said. “Cost pressures are, however, expected to get increasingly transmitted to output prices across manufacturing and services sectors,” it said.

 

While delivering his address, Das said that inflation trajectory is now poised at a “decisive point”.

 

Even as there are incipient signs of a confluence of factors that could lead to further softening of domestic inflationary pressures, there remain significant uncertainties, Das said.

 

“In such a milieu, with growth momentum expected to be resilient despite headwinds from the external sector, monetary policy should persevere further in its stance of withdrawal of accommodation to ensure that inflation moves close to the target of 4.0% over the medium term, while supporting growth,” Das said.

 

The Reserve Bank of India today retained its forecast for India’s GDP growth in 2022-23 at 7.2%. It also retained its forecast for the quarterly GDP growth. 

 

The RBI expects GDP to grow at 16.2% in Apr-Jun, 6.2% in Jul-Sep, 4.1% in Oct-Dec and 4.0% in Jan-Mar. It projected real GDP growth for Apr-Jun 2023 at 6.7%. End

 

US$1 = 79.17 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Priyansh Verma

Edited by Akul Nishant Akhoury

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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Source: Cogencis

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