New Delhi- The Reserve Bank on Wednesday projected inflation to come down below the upper threshold level of 6 per cent by March quarter of the current fiscal saying the worst of inflation is behind us, but there is no room for complacency in the fight against price-rise.
It, however, retained its 6.7 per cent average retail inflation forecast for the current fiscal. The retail or consumer price index (CPI) based inflation has remained above the RBI’s upper tolerance threshold of 6 per cent for 10 months till October.
In its monetary policy statement RBI Governor Shaktikanta Das said the central bank will keep ‘Arjuna’s eye’ (keen focus) on the evolving inflation dynamics and projected inflation to remain above 4 per cent for the next 12 months.
“Over the next 12 months, inflation is expected to remain higher than the 4 per cent target… While being watchful of the impact of our earlier monetary policy actions, we will keep Arjuna’s eye on the evolving inflation dynamics and be ready to act as may be necessary,” Das said.
The RBI’s interest rate-setting panel on Wednesday hiked benchmark rate by 35 basis points to 6.25 per cent, taking the cumulative rate hikes to 2.25 per cent since May 2022.
The RBI said its actions will be ‘nimble’ keeping the aspect of growth in mind. It has cut the GDP growth forecast for current fiscal to 6.8 per cent, from 7 per cent projected in September.
The Reserve Bank has the mandate of keeping inflation under 4 per cent, with a band of (+/-) 2 per cent.
Das said the medium-term inflation outlook is exposed to heightened uncertainties from geopolitical tensions, financial market volatility and the rising incidence of weather-related disruptions.
In recent times, global commodity prices, including crude oil, have undergone some downward correction, but the resurgence in domestic services sector activity could also lead to price increases, especially as firms pass on input costs.
“Taking into account these factors and assuming an average crude oil price (Indian basket) of USD 100 per barrel, headline inflation is projected at 6.7 per cent in 2022-23, with Q3 (October-December) at 6.6 per cent and Q4 (January-March) at 5.9 per cent,” the RBI said.
Retail inflation for the first and second quarter of the next fiscal is projected at 5 per cent and 5.4 per cent respectively, on the assumption of a normal monsoon.
The pressure points from high and sticky core inflation and exposure of food inflation to international factors and weather-related events do remain.
Going forward, food inflation is likely to moderate with the usual winter softening and the likelihood of a bountiful rabi harvest, but pressure points remain in the form of prices of cereals, milk and spices in the near-term. Risks from adverse weather events add to uncertainty in the outlook.
Das said inflation is cooling across the world on softening of the commodity and the oil prices, but stressed that we cannot be “complacent” despite the positive news on inflation. The worst of inflation is behind us, he said in the post monetary policy press conference.
Worst Of Inflation Behind Us, But No Room For Complacency: Shaktikanta Das
The worst of inflation is behind us, but there is no room for complacency in the fight against price-rise, RBI Governor Shaktikanta Das said on Wednesday.
Das also said that from a growth perspective, India stands out as an isle of resilience in a “gloomy world” which is staring at slowing growth with possibilities of recession in some countries, Das told reporters in the post-policy review.
Earlier in the day, the RBI’s rate-setting panel resolved to go for a 35 basis points hike in the key interest rates, taking the cumulative rate hikes to 2.25 per cent since May 2022.
The RBI has been hiking rates because of the high inflation, where the headline number has been above the upper end of the tolerance band for the tenth month running in October.
Das said inflation is cooling across the world on softening of the commodity and the oil prices, but stressed that we cannot be “complacent” despite the positive news on inflation.
RBI Deputy Governor Michael Patra said RBI’s efforts will be first focused on getting inflation into the tolerance band of under 6 per cent, and added that the lowering of the quantum of the hikes at 35 basis points as against 50 basis points earlier should be seen as a signal which the central bank is sending out.
“Rate hikes of 50 basis points are over,” Patra said.
Das said the RBI will be nimble in its actions and will be focusing on the incoming data and its assessment.
He also added that it has acted “proactively and effectively” over the last three years. (PTI)