Informist, Friday, Apr 8, 2022

NEW DELHI – The Reserve Bank of India today scaled up its projection for average inflation in the current financial year started April to 5.7% from 4.5% on the back of a sharp increase in international commodity prices following the war in Ukraine. 

The central bank projected inflation to average 6.3% in Apr-Jun and 5.8% in Jul-Sep, sharply higher than its earlier projection of 4.9% and 5.0%, respectively.

It also raised the projections for Oct-Dec to 5.4% and Jan-Mar to 5.1%. In February, the RBI had projected inflation in Oct-Dec at 4.0% and in Jan-Mar at 4.2%.

The projections are based on the assumption that the Indian crude oil basket price will average $100 per barrel in 2022-23.

"Heightened geopolitical tensions since end-February have, however, upended the earlier narrative and considerably clouded the inflation outlook for the year," RBI Governor Shaktikanta Das said, announcing the monetary policy decision.

Given the excessive volatility in global crude oil prices and the extreme uncertainty over the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk, Das said.

Notwithstanding the sharp upward revision in inflation forecasts, the Monetary Policy Committee of the RBI today unanimously voted to leave the policy repo rate and the accommodative stance unchanged.

The committee, however, changed the phrasing of the policy stance, saying it would "remain accommodative while focusing on withdrawal of accommodation". The earlier policy stance had said it would "continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis". 

In a post-policy press conference, RBI Governor Shaktikanta Das said the inflation projections in particular had been revised upwards due to war-induced factors, which have led to an increase in prices of crude oil, edible oils, and wheat.

As a result, "in the sequence of priorities, we have now put inflation before growth", said Das. "For the last three years, we have put growth ahead of inflation in the sequence, we have revised that now as we think the time is appropriate for it to be done."

As pump prices have started increasing from Mar 22 after remaining unchanged since the beginning of December, it could "trigger broad-based second round price pressures".

"A combination of high international commodity prices and elevated logistic disruptions could aggravate input costs across agriculture, manufacturing and services sectors," the RBI governor had said in his address earlier today. "Their pass-through to retail prices, therefore, warrants continuous monitoring and proactive supply management."  End

Reported by Priyansh Verma

Edited by Avishek Dutta

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