RBI's MPC projects CPI inflation for FY22 at 5.3%, FY23 at 4.5%

The Reserve Bank of India, on Thursday, projected the consumer price index (CPI) inflation at 5.3 per cent for the financial year 2022 and 4.5 per cent in FY23. Indian central bank’s governor Shaktikanta Das, during the Monetary Policy announcements, said that he is expecting inflation would peak in the January-March quarter of FY22 with tolerance band, moderating in the second half of next fiscal.

“The inflation projection for 2021-22 is retained at 5.3 per cent, with Q4 at 5.7 per cent on account of unfavourable base effects that ease subsequently. In particular, the CPI reading for January 2022 is expected to move closer to the upper tolerance band, largely due to adverse base effects," said the RBI governor.

Das said, "The hardening of crude oil prices, however, presents a major upside risk to the inflation outlook. Core inflation remains elevated at tolerance testing levels, although the continuing pass through of tax cuts relating to petrol and diesel last November would help to moderate input cost pressures to some extent. The transmission of input cost pressures to selling prices remains muted in view of the continuing slack in demand. Further, as risks from Omicron wane and supply chain pressures moderate, there could be some softening of core inflation.”

“Taking all these factors into consideration and on the assumption of a normal monsoon, CPI inflation for 2022-23 is projected at 4.5 per cent with Q1:2022-23 at 4.9 per cent; Q2 at 5.0 per cent; Q3 at 4.0 per cent; and Q4 at 4.2 per cent, with risks broadly balanced,” he further added.

MPC also projected India's economic growth for FY23 at 7.8 per cent and, based on an assessment of the current macroeconomic situation, also voted to keep the policy repo rate unchanged at 4 per cent. It decided by a majority of 5 to 1 to continue with the accommodative stance to revive and sustain growth and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

The MPC’s three-day deliberations came in the wake of Union Budget 2022, inflationary concerns and evolving geo-political situation, which ended today. The meeting was rescheduled by a day due to the Maharashtra govt declaring a public holiday on February 7 to mourn the death of singer Lata Mangeshkar.