RBI raises inflation forecast to 6.7% from 5.7% for FY23

NEW DELHI: The Reserve Bank of India (RBI) retained its GDP growth forecast for 2022-23 at 7.2% but sharply raised its inflation estimate for the year to 6.7% from the earlier 5.7% due to the heightened uncertainty triggered by the war in Ukraine and the breakdown in supply chains.
Its projections suggest that inflation will remain above its 6% tolerance level at least till the December quarter. The central bank, which has been criticised for being behind the curve on reading the trajectory of inflation, has recognised the threat of price pressures that remain stubborn due to a raft of factors, including high global crude oil prices.
Das said that with the assumption of a normal monsoon in 2022 and average crude oil price (Indian basket) of $105 a barrel, inflation is now projected at 6.7% in 2022-23, with risks evenly balanced. During the current quarter, it is expected to be around 7.5%, and is expected to remain around the same level in the next quarter too with the central bank pegging it at around 7.4%. It will moderate to around 6.2% in the December quarter, and with a projection of 5.8% in the March quarter, it will be within the upper end of the target.
Das said that around 75% of the increase in inflation projections can be attributed to the food group and added that the baseline inflation projection of 6.7% for 2022-23 does not take into account the impact of monetary policy actions taken on Wednesday.
“Between February and April, headline inflation has increased by about 170 basis points. With no resolution of the war in sight and the upside risks to inflation, prudent monetary policy measures would ensure that the second-round effects of supply side shocks on the economy are contained and long-term inflation expectations remain firmly anchored and inflation gradually aligns close to the target. The monetary policy actions including withdrawal of accommodation will be calibrated keeping in mind the requirements of the ongoing economic recovery,” RBI governor Shaktikanta Das said after the meeting of the monetary policy committee.
Retail inflation soared to a near 8-year high of 7.8% in April while wholesale inflation surged to a record high of 15.1%, scorching household budgets and emerging as a major policy challenge for an economy which is scripting a recovery from the bruising impact of the pandemic. It has remained above the central bank’s upper tolerance level for four consecutive months.
Das said the global geopolitical situation remains fluid and commodity markets remain on edge, rendering heightened uncertainty to the domestic inflation outlook but also pointed to certain positive developments that may help to ease price pressures. “These would include expectations of a normal monsoon, the recent supply side measures taken by the government, lifting of the palm oil export ban by Indonesia, and signs of moderation in global industrial metal price indices,” said Das.