The Reserve Bank of India (RBI) has now joined the fight by stressing the need to ‘keep inflation and inflationary expectations under check’. Just a month after RBI’s Monetary Policy Committee (MPC) decided in a surprise ‘off-cycle’ meeting to raise interest rates for the first time in nearly four years, the rate setting panel has complied Policy repo rate hiked by another 50 basis points, Also, the MPC has made it clear that it no longer intends to ‘remain accommodative’. Instead it will focus on a return to pandemic-triggered housing as it races to tame retail inflation and anchor it within the 2%-6% target band. In acknowledgment of the difficult task ahead of it, the MPC now forecasts retail inflation to average 6.7% for the full fiscal year ending in March – an increase of a full one percentage point from 5.7% forecast in April. Price gains in the April-June quarter are now expected to grow at a 7.5% pace, 120 basis points faster than earlier estimates, before printing at 7.4% in Q2, 160 basis points faster than April’s estimate of 5.8% Is. Headline CPI-based inflation is now stuck at 6.2%, above the RBI’s upper tolerance limit in Q3, before decelerating to 5.8% in the fourth quarter. The MPC lists a number of factors clouding the inflation outlook: the war in Ukraine and consequently increased commodity prices, heat wave stunting Rabi Crop output, higher edible oil prices, crude oil prices that continue to pose a pass-through risk to domestic pump prices of the fuel, increased electricity rates, and, importantly, manufacturing and service firm input and output Prices are flagging pressures.
Inflation is rising on every other aspect of the outlook for the economy worldwide, this is also evident in the context of the MPC’s ‘rising inflation concerns’ which are increasing volatility in global financial markets. While the RBI has been brave to retain its April forecast for GDP growth in the current fiscal at 7.2%, citing ongoing recovery including expected growth in rural consumption from contact-intensive services and rains has gone. Kharif Sowing and production, the onset of 37 per cent ‘below normal’ for the southwest monsoon serves as an early warning. And it is precisely the “rapid headwinds in inflation” and the resultant ‘erosion of consumer purchasing power’, which the World Bank cited on Tuesday when it cut its forecast for India’s GDP growth for this year by 50 basis points. raised to 7.5%. The RBI’s only hope in a quick survey comes after the May 21 cut in excise duty on petrol and diesel, lowering the three-month ahead inflation expectations of urban households by 190 basis points. Governor Shaktikanta Das cited the findings to underline that states can also do their bit to ease inflationary pressures by further reducing their value-added taxes on fuel.