Latest from Multi News Outlets

MPC retains inflation forecast for FY23 but highlights external uncertainty

Personalabs STD testing


- Advertisement -

The Reserve Bank of India’s Monetary Policy Committee (MPC), which raised the repo rate by 50 basis points (bps) on Friday, has retained its forecast for retail price inflation at 6.7 per cent for the current financial year, but revised the numbers for the current and the third quarters (Q2 and Q3) of financial year 2022-23 (FY23).

The committee now feels that the consumer price index (CPI)-based inflation rate for Q2 would be a bit less at 7.1 per cent than the 7.4 per cent forecast earlier. However, the Q3 inflation rate would now be a bit higher than estimated at 6.4 per cent against 6.2 per cent earlier.

The committee maintained its forecast for gross domestic product (GDP) at 7.2 per cent as well for all the four quarters at the April and June review levels. However, the committee’s economic growth forecast is yet to be tested, whereas the inflation numbers for the first quarter have already come.

While the MPC did not provide a projection for the Q1, it comes at 7.5 per cent, given the average inflation at 6.7 per cent for the entire year. However, average inflation in Q1 stood at 7.3 per cent. This means that the MPC projected inflation at 7.7 per cent for June, instead of 7.01 per cent, according to provisional numbers.

Like in the June review, the committee now believes that the (RBI) will have to explain to the government in writing the reasons for its failure to contain inflation at 6 per cent, suggest remedial measures, and provide a time-frame for bringing the rate down to 6 per cent.

According to the monetary policy framework agreement between the RBI and the Centre, the central bank has to provide an explanation if the average retail price inflation remains above 6 per cent for three quarters.

The inflation rate has already crossed the upper tolerance level for six months in a row till June, as the fourth quarter of the previous financial year also had an average rate of price rise of over 6 per cent.

The MPC believes inflation will hover above 6 per cent for two more quarters.

“…inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second round effects,” the MPC said.

It said food and metal prices have come off their peaks recently. “International crude oil prices have eased in recent weeks but remain elevated and volatile on supply concerns even as the global demand outlook is weakening,” it added.

Global prices of the Indian basket of crude have come down below $100 a barrel to $96.20 as on August 4. Prices for August averaged $99.75 a barrel till Thursday, against $105.49 in July, $116.01 in June, $109.51 in May, and $102.97 in April.

The MPC’s projections of inflation for FY23 are based on the assumption of a normal monsoon in 2022 and average crude oil price (Indian basket) of $105 per barrel.

The MPC said the appreciation of the dollar can feed into imported inflation pressures. The rupee stood at 79.01 to the dollar on average in the first five days of August, against 79.51 on average in July and 78.01 in June. The rupee had stood at 76.18 in April.

The monetary panel expressed optimism that rising kharif sowing augurs well for the domestic food price outlook. But, it added a caveat on the slow pace of paddy sowing. “The shortfall in paddy sowing, however, needs to be watched closely, although stocks of rice are well above the buffer norms,” it said.

Firms polled in the RBI’s enterprise surveys expect input cost pressures to soften across sectors in the second half of the fiscal, it said.

However, the MPC cautioned that the cost pressures are expected to get increasingly transmitted to output prices across manufacturing and services sectors.



Read More: MPC retains inflation forecast for FY23 but highlights external uncertainty

Leave A Reply