RBI projects retail inflation at 5.1 pc in FY22 on supply-side measures, monsoon

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June 04, 2021 4:33 PM

While on the other hand, the rising trajectory of the international crude oil prices within a broad-based surge in international commodity prices and logistics costs is worsening cost conditions.

The CPI retail inflation data for the month of May is awaited in the third week of this month.

The Reserve Bank of India on Friday said it expects retail inflation to be at 5.1 per cent in the current financial year supported by the progress of monsoon and effective supply-side interventions by the government.

The projection is well within the Monetary Policy Committee’s target to keep the rate of inflation at 4 per cent with an upper or lower tolerance level of 2 per cent.

However, the apex bank remained equally cautious about the upside risks due to rising global commodity prices.

Moreover, the persistence of the second wave of the pandemic and the consequent restrictions on activity on a virtually pan-India basis puts upside risks to inflation, RBI observed in its monetary policy review.

Presenting the second bi-monthly monetary policy review, RBI Governor Shaktikanta Das announced that the key repo rate — the short-term lending rates to banks — will be kept unchanged at 4 per cent.

The favourable base effects that brought about moderation in headline inflation by 1.2 percentage points in April, may persist through the first half of the year, conditioned by the “progress of the monsoon and effective supply-side interventions by the government”, Das said.

Taking into consideration the measures taken so far as well as the upside risks, Das said the CPI (Consumer Price Index) inflation is projected at 5.1 per cent during 2021-22.

This consists of 5.2 per cent in the first quarter, 5.4 per cent in the second quarter, 4.7 per cent in the third quarter and 5.3 per cent in the fourth quarter of this fiscal, with risks broadly balanced, he said.

“… insulating prices of essential food items from supply side disruptions will necessitate active monitoring and preparedness for coordinated, calibrated and timely measures by both Centre and state governments to prevent emergence of supply-side bottlenecks and increase in retail margins,” the governor said.

The retail inflation came in at 4.3 per cent in April which has provided some cushion as well as policy side elbow room, RBI said.

The CPI retail inflation data for the month of May is awaited in the third week of this month.

RBI said a normal south-west monsoon along with a comfortable buffer stock should help to keep cereal price pressures in check.

While on the other hand, the rising trajectory of the international crude oil prices within a broad-based surge in international commodity prices and logistics costs is worsening cost conditions.

“These developments could keep core price pressures elevated, although weak demand conditions may temper the pass-through to consumer inflation,” the RBI governor said in his statement.

RBI said it will continue to take an accommodative stance as long as necessary to revive and sustain growth on a durable basis to mitigate the impact of the pandemic on the economy, while ensuring that inflation remains within the target going forward.

Retail inflation is a key input for the Reserve Bank to decide on its monetary policy every two months.

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