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Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said the inflation trajectory is likely to be in line with the Central bank’s earlier projection of 5.3 per cent for FY22 but price pressures may persist in the immediate term.
RBI has revised the third quarter retail inflation forecast upwards to 5.1 per cent from 4.5 per cent. The Central bank, however, lowered the fourth quarter retail inflation projection a tad to 5.7 per cent from 5.8 per cent. Overall, RBI has retained its FY22 retail inflation projection at 5.3 per cent.
RBI monetary policy: repo rate unchanged at 4 per cent
“Cost-push pressures continue to impinge on core inflation, though their pass-through may remain muted due to the slack in the economy. Over the rest of the year, the inflation prints are likely to be somewhat higher as the base effects turn adverse; however, it is expected that the headline inflation will peak in Q4:2021-22 and soften thereafter,” Das said.
India’s GDP growth
RBI retained the projection for real GDP growth at 9.5 per cent in FY22. However, it lowered the third and the fourth quarter GDP projection to 6.6 per cent (earlier projection: 6.8 per cent) and and 6.0 per cent (6.1 per cent), respectively.
The real GDP growth has been projected at 17.2 per cent for Q1 of FY23 and at 7.8 per cent for Q2.
Covid variant Omicron’s risk to monetary policy
“Overall, the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of the continued policy support,” the Governor said.
Das cautioned that the downside risks to the outlook have risen with the emergence of Omicron and renewed surges of Covid-19 infections in a number of countries.
Besides, notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in the global financial markets due to a faster normalisation of the monetary policy in advanced economies, and prolonged global supply bottlenecks.
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