Persistently high inflation remains a key policy concern for the Reserve Bank, which has raised rates aggressively so far this year, but the pressure could ease next budget assuming normal rainfall and further normalization of chains of global supply without any exogenous shock, according to an RBI report. .
The Reserve Bank of India (RBI) expects retail inflation to be under control at 5.2% in the next financial year from April, down from 6.7% forecast for the current year .
“By 2023-24, assuming a normal monsoon, gradual normalization of supply chains and no further exogenous or policy shocks, the structural model estimates indicate that inflation will average 5.2 percent,” he said RBI in its monetary policy report for September 2022. .
The central bank is mandated to keep retail inflation in a range of 2-6%.
However, inflation has been above the RBI’s upper tolerance level since January 2022, mainly due to adverse supply shocks amid geopolitical tensions stemming from the war between Russia and Ukraine since end of February
Both countries are key suppliers of food grains, edible oil, fertilizers and energy resources such as crude oil and natural gas.
While inflation has eased from its April peak of 7.8%, it remains at unacceptably high levels, the central bank said in the report.
On Friday, the Reserve Bank raised the key repo rate by 0.50% to 5.90% to control inflation. During the May-August period this fiscal, it increased the policy repo rate by 140 basis points or 1.4 percent.
The RBI’s six-member Monetary Policy Committee (MPC) met four times during April-September 2022, including an off-cycle meeting in May, against the backdrop of a sharp jump in world commodity prices and uncertainties around the pace of monetary policy. standardization worldwide.
RBI Governor Shaktikanta Das, while announcing the policy, said that the world has already witnessed two major shocks from the pandemic and the situation in Ukraine in the last two and a half years and a third shock is it produces in the form of aggressive monetary policy actions by central banks worldwide.
The RBI expects inflation to remain above the upper tolerance level of 6% for the first three quarters of 2022-23 (till December) and expects it to remain under control from January 2023 onwards.
For the January-March quarter of 2022-23, retail inflation has been projected to average 5.8% and lower to 5% in April-June 2023-24.
While the outlook for the upcoming fiscal budget looks calm, upside risks remain on a number of factors including rising geopolitical tensions, higher crude and commodity prices, longer-than-expected supply chain disruptions and escalating volatility in global financial markets due to aggressiveness. monetary policy actions.
Shortfall in domestic production of kharif crops, unseasonal rains or consolidation of demand may also add to the risks.
“Downside risks could arise from an early resolution of geopolitical tensions,” the RBI report said.
A further correction in global commodity prices due to slowing global demand and improving supply conditions with the pandemic ebbing will help lower inflation.
According to the International Monetary Fund (IMF), global economic growth is expected to slow to 3.2% in 2022 from 6.1% in 2021, while the outlook is “gloomier and more uncertain” with risks downward sloping
On the other hand, global consumer price inflation is expected to reach 8.3% this calendar year, compared to 4.7% in 2021.
The RBI has cut India’s GDP growth forecast for this fiscal year to 7% from its previous projection of 7.2%.