RBI sees inflation fall below 6% in March 2023, to keep “Arjuna’s Eye” on prices: Governor

New Delhi:

The Reserve Bank today forecast inflation to fall below the upper 6 percent threshold in the March quarter of the current fiscal year, saying the worst of inflation is behind us but there is no room for complacency in the fight against price increases .

However, it maintained its forecast of average retail inflation of 6.7 percent for the current fiscal year. Inflation based on the retail or consumer price index (CPI) has remained above the RBI’s upper tolerance threshold of 6 percent for 10 months to October.

In his monetary policy statement, RBI Governor Shaktikanta Das said the central bank will keep “Arjuna’s eye” (sharp focus) on evolving inflation dynamics and inflation expected to remain above 4 percent for the next 12 months.

“Over the next 12 months, inflation is expected to remain above the 4 percent target…While we are vigilant about the impact of our past monetary policy actions, we will keep Arjuna’s eye on evolving inflation dynamics and be ready to act . as may be necessary,” said Shaktikanta Das.

The RBI’s rate-setting panel raised benchmark interest rates by 35 basis points to 6.25 percent on Wednesday, bringing cumulative rate hikes since May 2022 to 2.25 percent.

The RBI said its actions will be “savvy” taking into account the growth aspect. It has cut its GDP growth forecast for the current fiscal year to 6.8 percent, from 7 percent forecast in September.

The Reserve Bank is mandated to keep inflation below 4 percent, with a margin of (+/-) 2 percent.

Shaktikanta Das said the medium-term inflation outlook is subject to heightened uncertainties due to geopolitical tensions, financial market volatility and the increasing incidence of weather-related disruptions.

In recent times, global commodity prices, including crude oil, have undergone some downward correction, but the rebound in activity in the domestic services sector may also lead to price increases, especially as companies pass on input costs.

Taking these factors into account and assuming an average crude oil price (Indian basket) of USD 100 per barrel, headline inflation is projected at 6.7 percent in 2022-23, with Q3 (October-December) at 6, 6 percent and Q4 (January-March) at 5.9 percent,” the RBI said.

Retail inflation for the first and second quarters of the next fiscal year is forecast at 5 percent and 5.4 percent, respectively, assuming a normal monsoon.

The pressure points of high and sticky core inflation and exposure of food inflation to international factors and weather-related events remain.

Going forward, food inflation is likely to moderate with the usual winter softening and the chance of a bountiful rabi harvest, but near-term pressure points remain in the form of grain, milk and spice prices. Risks of adverse weather conditions increase the uncertainty in the outlook.

Shaktikanta Das said that inflation around the world is cooling due to the weakening of commodity and oil prices, but stressed that despite the positive inflation news, we cannot be “complacent”. The worst inflation is behind us, he said during the post-monetary policy press conference

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