NEW DELHI: Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday announced the Monetary Policy Committee's decision of hiking repo rate by 35 basis points to 6.25 per cent. The inflation trajectory has largely evolved in line with the outlook given by us in June 2022, Shaktikanta Das said, adding that going forward, food inflation is likely to moderate with the usual winter softening and the likelihood of a bountiful rabi harvest.
However, the Governor said pressure points remained in the form of prices of cereals, milk and spices in the near-term. He added that the main risk was that core inflation (CPI excluding food and fuel) remains sticky and elevated. "Overall, the CPI price momentum remains high. Risks from adverse weather events add to uncertainty in the outlook."
On RBI's inflation target, he said global commodity prices, including crude oil, have undergone some downward correction, but uncertainty continues to surround the near-term outlook in view of the prolonging geo-political hostilities. "The outlook for the US dollar and hence imported inflation also remains uncertain. Moreover, the resurgence in domestic services sector activity could also lead to price increases, especially as firms pass on input costs."
The Governor said taking into account these factors and assuming an average crude oil price (Indian basket) of USD 100 per barrel, headline inflation is projected at 6.7 per cent in 2022-23, with the third quarter (Q3) at 6.6 per cent and fourth quarter (Q4) at 5.9 per cent. "The risks are evenly balanced. CPI inflation for Q1: 2023-24 (first quarter in next financial year) is projected at 5 per cent and for second quarter (Q2) at 5.4 per cent, on the assumption of a normal monsoon," he said.
Talking about India's growth, the Governor said India's real GDP growth for 2022-23 is projected at 6.8 per cent, with the third quarter (Q3) at 4.4 per cent and the fourth quarter (Q4) at 4.2 per cent and added that the risks are evenly balanced. "Real GDP growth is projected at 7.1 per cent for Q1 in 2023-24 and at 5.9 per cent for Q2. Even after this revision in our growth projection for 2022-23, India will still be among the fastest-growing major economies in the world," the Governor added.
Speaking on liquidity and financial markets, the RBI Governor said, "When the monetary policy tightening is globally over, the tide will surely turn. Capital flows to India will improve and external financing conditions will ease."
He said in this complex world with both push and pull factors at play, the INR (Indian rupee) - which is market-determined - should be allowed to find its level and that is what the RBI has been striving to ensure. "We must deal with the current global hurricane with confidence and endurance," he said.
He said, "On a financial year basis (April 2022 to October 2022), the INR has appreciated by 3.2 per cent in real terms, even as several major currencies have depreciated. The story of the INR has been one of India's resilience and stability."