RBI revises retail inflation projection to 5.7% for FY22

The Reserve Bank of India (RBI) has revised upwards retail inflation projection for FY22 to 5.7 per cent from 5.1 per cent even as it retained the overall FY22 real GDP growth at 9.5 per cent.

The revised quarterly retail inflation projections are: 5.9 per cent in Q2 (5.4 per cent earlier projection); 5.3 per cent in Q3 (4.7 per cent); and 5.8 per cent in Q4 (5.3 per cent) of 2021-22.

In the June 2021 monetary policy review, the Q1 FY22 CPI inflation was projected at 5.2 per cent.

“The recent inflationary pressures are evoking concerns, but the current assessment is that these pressures are transitory and largely driven by adverse supply side factors,” said RBI Governor Shaktikanta Das.

Oil prices

Das observed that crude oil prices are volatile with implications for imported cost pressures on inflation.

He said the combination of elevated prices of industrial raw materials, high pump prices of petrol and diesel with their second-round effects, and logistics costs continue to impinge adversely on cost conditions for manufacturing and services, although weak demand conditions are tempering the pass-through to output prices and core inflation. The RBI has projected retail (Consumer Price Index) inflation for Q1:2022-23 at 5.1 per cent

While retaining the overall projection of real GDP growth at 9.5 per cent in 2021-22, the growth projection for Q1 was raised to 21.4 per cent (against earlier projection of 18.5 per cent), but the projections for the remaining three quarters were lowered.

The real GDP growth projection has been lowered to 7.3 per cent in Q2 (against earlier projection of 7.9 per cent); 6.3 per cent Q3 (7.2 per cent); and 6.1 per cent Q4 (6.6 per cent)

“Today, we are in a much better position than at the time of the MPC’s meeting in June 2021. As the second wave of the pandemic ebbs, containment eases and we slowly build back, vaccine manufacturing and administration are steadily rising

“Yet the need of the hour is not to drop our guard and to remain vigilant against any possibility of a third wave, especially in the background of rising infections in certain parts of the country,” said Das.

The Governor observed that RBI’s expectation is that activity is likely to gather pace with progressive upscaling of vaccinations, continued large policy support, buoyant exports, better adaptations to Covid-related protocols, and benign monetary and financial conditions.

Real GDP growth for Q1:2022-23 has been projected at 17.2 per cent.

“Since the start of the pandemic, the MPC has prioritised revival of growth to mitigate the impact of the pandemic.

“The available data point to exogenous and largely temporary supply shocks driving the inflation process, validating the MPC’s decision to look through it,” said Das.

The Governor noted that supply-side drivers could be transitory while demand-pull pressures remain inert, given the slack in the economy.

He emphasised that a pre-emptive monetary policy response at this stage may kill the nascent and hesitant recovery that is trying to secure a foothold in extremely difficult conditions.

COMMENT NOW