The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) on Friday pegged the Consumer Price Index (CPI) inflation to 5.7 per cent from 5.1 per cent projected earlier for Financial Year (FY) 2022. The inflation is expected to be at 5.1 percent for Q1, 5.9 per cent in Q2, 5.3 percent in Q3 and 5.8 per cent in Q4 of FY22, RBI governor Shaktikanta Das mentioned. “Inflation may remain close to the upper tolerance band up to Q2:2021-22, but these pressures should ebb in Q3:2021-22 on account of kharif harvest arrivals and as supply side measures take effect. Taking into consideration all these factors, CPI inflation is now projected at 5.7 per cent during 2021-22: 5.9 per cent in Q2; 5.3 per cent in Q3; and 5.8 per cent in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5.1 per cent,” Das mentioned while announcing the MPC decisions.
This is in line with what analysts predicted. The Consumer Price Index-based inflation (CPI) for the month of June rose 6.26 per cent as the prices had increased and transportation costs rise due to high rates of petrol and disel. The retail inflation recorded at 6.30 per cent for May, the highest in six months and above RBI’s suggested zone of 2-6 per cent.
“Headline CPI inflation edged up sharply to 6.3 per cent in May driven by a broad-based pick-up across all major groups on adverse supply shocks, sectorspecific demand-supply mismatches and spillovers from rising global commodity prices. It remained at 6.3 per cent in June; however, core inflation registered an appreciable moderation,” Das said.
The Monetary Policy Committee has decided to keep the repo rate steady and unchanged. The repo rate has been kept at 4 per cent. The reverse repo rate or the central bank’s borrowing has been unchanged at 3.35 per cent.
“The monetary policy announcements came exactly on expected lines – continuation of the accommodative monetary stance, status quo in policy rates, maintaining the FY GDP at 9.5% and upward revision in FY 22 CPI inflation rates. The upward revision in CPI inflation rate to 5.7 per cent from 5.1 per cent earlier reflects the higher inflation prints in recent months. But the MPC believes that the higher inflation trend is transitory since it is caused by supply-side constraints. The Governor again reiterated that the RBI’s priority would be “to promote growth within the framework of financial stability”. The RBI is rightly concerned that any departure from the present pro-growth monetary policy may ‘kill the nascent and hesitant recovery’. The communication from the central bank augurs well for the continuation of the growth impulses in the economy,” said V K Vijayakumar, chief investment Strategist at Geojit Financial Services.
Overall, the tone of the monetary policy remains growth supportive. The central bank maintained the Gross Domestic Product (GDP) growth forecast for FY22 unchanged at 9.5 per cent. “External demand remained buoyant during Q1 of 2021-22 and was reflected in increasing exports, lending critical support to aggregate demand. Strong external demand is an opportunity for India and further policy support should help in capitalising on this,” Das said. “Global commodity prices and episodes of financial market volatility, together with vulnerability to new waves of infections are, however, downside risks to economic activity. Taking all these factors into consideration, projection of real GDP growth is retained at 9.5 per cent in 2021-22 consisting of 21.4 per cent in Q1; 7.3 per cent in Q2; 6.3 per cent in Q3; and 6.1 per cent in Q4 of 2021-22. Real GDP growth for Q1:2022-23 is projected at 17.2 per cent,” he further mentioned.
To tide over the crisis due to Covid-19 second wave, the central bank on Friday extended the on-tap TLTRO (targeted long-term repo operations) scheme. The aim is to make sure that there is enough liquidity in the markets. “Given the nascent and fragile economic recovery, it has now been decided to extend the on-tap TLTRO scheme further by a period of three months, i.e. till December 31, 2021,” Das said. The RBI also extended the relaxation given to banks on marginal standing facility (MSF) till December, 2021.
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