RBI MPC: Central bank projects inflation to fall to 5.3% in FY24

The Reserve Bank of India (RBI) on Wednesday projected retail inflation to ease to 5.3 per cent in next fiscal on assumptions of lower imported inflation, even though core inflation remains sticky.

RBI Governor Shaktikanta Das while announcing the monetary policy committee's decision, said that the inflation outlook for current fiscal has improved from 6.8 per cent projected earlier, to 6.5 per cent. He said that the steeper than expected decline in vegetable prices and crude are at play.

“Headline CPI inflation moderated by 105 bps during Nov Dec 2022 from its level of 6.8 per cent on Dec 2022. This was due to softening in food inflation on the back of sharp deflation in vegetable prices which more than offset the inflationary pressure from cereals, protein-based food items and spices,” he said.

"Looking ahead, while inflation is expected to moderate in 2023-24, it is likely to rule above the 4 per cent target. The outlook is clouded by continuing uncertainties from geopolitical tensions, global financial market volatility, rising non-oil commodity prices and volatile crude oil prices. At the same time, economic activity in India is expected to hold up well," Das added.

The low volatility of the Indian rupee relative to peer currencies limits the impact of imported price pressures and other global spillovers.

Indian economy remains resilient, it has withstood several global shocks. Inflation has shown signs of moderation & the worst is behind us. But there are concerns over core inflation. We are now witnessing conducive conditions of macro-economic stability: RBI Governor pic.twitter.com/tRpLnXGR4c

— ANI (@ANI) February 8, 2023

"...Assuming an average crude oil price (Indian basket) of USD 95 per barrel, inflation is projected at 6.5 per cent in 2022-23, with Q4 at 5.7 per cent. On the assumption of a normal monsoon, CPI inflation is projected at 5.3 per cent for 2023-24, with Q1 at 5 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.6 per cent. The risks are evenly balanced," Das said.

Consumer price index-based inflation in India moved below the upper tolerance level of 6 per cent during November-December 2022, driven by a strong decline in prices of vegetables. Core inflation, however, remains sticky, the RBI said.

Since May 2022, the central bank has raised the repo rate by 250 basis points to arrest galloping inflation, mostly driven by external factors, especially global supply chain disruption after Russia’s invasion of Ukraine.

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