Ajit Karn
The Reserve Bank of India (RBI) has lowered India’s inflation forecast for 2023-24 to 5.1 pc from 5.2 pc in April.
On a quarterly basis, retail inflation (or the Consumer Price Index) is expected to be 4.6% in the first quarter, 5.2% in the second quarter, 5.4% in the third quarter, and 5.2% in the fourth quarter, RBI Governor Shaktikanta Das said Thursday while reading the monetary policy statement following a three-day deliberation.
During March-April 2023, India’s headline inflation decreased to 4.7% in April, the lowest level since November 2021.
“Tightening of monetary policy and supply-side policies contributed to this process. Das noted that food, fuel, and “core” (CPI excluding food and fuel) inflation all decreased.
“A durable deflation in the core component is essential for sustained alignment of headline inflation with the target,” he said.
Das added that as a result of the recent rabi harvest being “largely immune” to adverse weather, the near-term inflation outlook is more optimistic than it was at the April policy meeting.
Allow me to reiterate that headline inflation is still above the target and that being within the tolerance band is insufficient. Our objective continuing forward is to reach the target of 4%,” he added.
The RBI’s monetary policy committee voted unanimously to maintain the repo rate at 6.5 percent. Repo rate is the interest rate at which the Reserve Bank of India lends to other institutions.
With the key interest rate remaining unchanged, loan and deposit rates are anticipated to remain unchanged as well.
Consistently falling inflation (currently at its lowest level in 18 months) and the possibility of further decline may have prompted the central bank to once more reduce the key interest rate. The vast majority of analysts anticipated that the RBI would leave the repo rate unchanged.
Inflation has been a concern for many nations, including developed economies, but India has been able to effectively manage its inflation trajectory.
The RBI suspended the repo rate at its April meeting, the first of the fiscal year 2023-24.
In an effort to combat inflation, the RBI has cumulatively increased the repo rate by 250 basis points to 6.5% since May 2022, excluding the month of April. Raising interest rates is a monetary policy instrument that typically aids in stifling economic demand, thereby reducing inflation.
India’s retail inflation was above the RBI’s 6 percent target for three consecutive quarters, and only in November 2022 did it return to the RBI’s comfort zone. In accordance with the flexible inflation targeting framework, the RBI is deemed to have failed to control price increases if CPI-based inflation falls outside the range of 2 to 6 percent for three consecutive quarters.
Regarding the GDP outlook, the RBI anticipates India’s 2023-24 GDP growth to be 6.5%, with Q1 growth of 8%, Q2 growth of 6.5%, Q3 growth of 6%, and Q4 growth of 5.75%. Today, while reading the monetary policy statement, the governor of the RBI, Shaktikanta Das, stated that the central bank considers the risks to these GDP figures to be evenly balanced.
According to recent estimates released by the National Statistical Office (NSO), real GDP growth for 2022-23 was 7.2%, which was higher than the expected 7%. The government anticipates an upward revision to the GDP figures for 2022-23 moving forward.
Also read this:Repo rate, inflation and GDP: What did RBI’s Monetary Policy Committee say today
In spite of robust global headwinds and stricter domestic monetary policy tightening, India is expected to be one of the fastest-growing economies in 2023-24, supported by robust growth in private consumption and sustained pick-up in private investment.
