RBI Monetary Policy: CPI inflation estimated at 5.3% for FY22, 4.5% in FY23; softening seen with moderation in Omicron, supply side pressure

The headline inflation or Consumer Price Index (CPI) inflation is expected to peak in Q4 of FY22 but is expected to say with the tolerance band of 4+/-2 per cent, Reserve Bank of India (RBI) Governor Shaktikanta Das today said while delivering his Monetary Policy announcements.

Das said the retail inflation is expected to moderate closer to the target in second half of 2022-23 and would provide room for monetary policy to remain accommodative.

The policy statement came after the conclusion of the Monetary Policy Committee (MPC) meeting which began on 8 February.

The inflation projection for 2021-22 is retained at 5.3 per cent, the Governor said with Q4 CPI inflation pegged at 5.7 per cent on account of unfavourable base effects that ease subsequently.

“In particular, the CPI reading for January 2022 is expected to move closer to the upper tolerance band, largely due to adverse base effects,” Das added.

CPI inflation for 2022-23 is projected at 4.5 per cent with projection for Q1, Q2, Q3 and Q4 at 4.9 per cent, 5 per cent, 4 per cent and 4.2 per cent respectively.

He also said that core inflation will soften as risks from Omicron wane and supply chain pressures moderate.

The MPC also noted that consumer price inflation has edged higher since its last meeting, but largely along anticipated lines. The increase in inflation in December was entirely due to unfavourable base effects despite month-on-month decline in prices. Large buffer stocks of cereals and effective supply side measures augur well for food inflation. Core inflation remains elevated, but demand-pull pressures are still muted. The renewed surge in international crude oil prices, however, needs close monitoring.

Governor Das also highlighted issues related to output which was "barely above its pre-pandemic level, while private consumption is still lagging". Global headwinds are accentuating, he said.

The RBI today kept the key policy rates unchanged. The repo rate is maintained at 4 per cent while the reverse repo rate at 3.35 per cent. 

Das said that considering the outlook for inflation and growth, along with the uncertainties related to Omicron and global spillovers, the MPC has continued its stance on policy support for a durable and broad-based recovery.

See Full Announcements Here:

Address by Shri Shaktikanta Das, Governor, Reserve Bank of India
https://t.co/TRMiREjWn4

— ReserveBankOfIndia (@RBI) February 10, 2022

"Our monetary policy would continue to be guided by its primary mandate of price stability over the medium term, while also ensuring a strong and sustained economic recovery. As stated by me earlier, our actions will be calibrated and well telegraphed," he further said.