‘Inflation outlook for FY24 evenly balanced’

Reserve Bank of India (RBI) governor Shaktikanta Das said on Saturday retail inflation could fall further from 5.3% projected for 2023-24 if crude prices remain benign. He said RBI has assumed crude price of $95/barrel for its inflation projection for the next fiscal, while the average price this year has been $93/bbl. “The risks to inflation are evenly balanced in FY24,” Das said.

Speaking to the media after the customary post-Budget RBI board meeting addressed by the finance minister, Das said the global economic outlook does not look as grim as it did about six months ago. “The talk of a deep recession in many countries including advanced countries… that is behind us. Now the talk around the world is either the softer recession or just a global slowdown. Therefore, the risks are evenly balanced. We have to wait and see how it plays out,” he said.

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The real interest rates have just moved into the positive territory after being in the negative for three years, Das said. “The continuation of negative interest rates for too long can create instability in the financial system. There are a lot of risks (from prolonged negative rates) which have to be avoided,” he said.

On re-pricing of loans such as for housing after the rise in interest rates, Das said market competition will decide rates on lending and deposit sides as it has been a de-regulated segment. In the wake of the recent hike in repo rate by the RBI, a few banks have revised their interest rates for housing loans and fixed deposits.

The governor said the draft Bill for the setting up of the National Financial Information Registry (NFIR) would be ready soon. The registry would provide ‘360-degree kind of information’ on borrowers to quicken the banks’ process of credit delivery, he said.

The RBI increased its policy interest rate by 25 bps to 6.5% on February 8, taking the cumulative rate hike to 250 bps since May 2022 to stem inflationary pressure.

While the ‘withdrawal of accommodation’ stance has been left unchanged against market expectation of changing it to ‘neutral’, analysts still expect the RBI to go on a prolonged pause now and also expect no further rate cuts this year.

Retail inflation has come down below the upper tolerance limit of 6% due to various measures taken by the government and the central bank. Consumer price index (CPI)-based inflation has come down from a high of 7.8% in April 2022 to 5.72% in December.

“The forward markets are giving a much more benign picture with regard to the oil prices. But we have been very conservative in our assessment,” Das said. If the oil prices go down significantly and if there was an advantage of other commodity prices, it would work in India’s favour in terms of leading to lower inflation, the governor added. If the oil demand was due to the opening up of countries and due to higher growth in other countries, then the commodity prices might go up, he added.

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On the balance of payment situation, the RBI governor said the financing of the current account deficit (CAD) was eminently manageable because the service exports and remittances were doing extremely well.

The CAD was at 3.3% of GDP in the first half of FY23. In Q2FY23, the CAD jumped to 4.4% on account of the deficit from merchandise trade, which rose to an all-time high of $83.5 billion.