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RBI retains FY24 retail inflation forecast at 5.4 pc

Food prices are expected to remain uncertain in future as per the Governor

RBI retains FY24 retail inflation forecast at 5.4 pc

MUMBAI: The Reserve Bank on Friday retained the retail inflation projection for the current fiscal at 5.4 per cent but said inflation may see an uptick in November and December due to pressure on food prices.

The encouraging signs, including an expanding manufacturing PMI and healthy growth in eight core industries, underline confidence in sustained robust growth.

On inflation, Shaktikanta Das, RBI governor said while there has been broad-based easing in core inflation, the “near-term outlook, however, is masked by risks to food inflation, which might lead to an inflation uptick in November and December.’’

“This needs to be watched for second-round effects, if any,’’ he said, projecting consumer inflation at 5.4 per cent for 2023-24, unchanged from its previous projection. Going ahead, the inflation outlook would be considerably influenced by uncertain food prices, with elevated global sugar prices being a matter of concern.

The RBI has raised the repo rate by a total of 250 basis points (bps) since May 2022 in efforts to cool surging inflation, which dropped to 4.87 per cent in October but is expected to remain above the 4 per cent medium-term target for some time.

The governor also highlighted that “over-tightening’’ can also pose growth risks to the economy, and emphasised that it is not a signal that the policy stance was moving towards neutral. Inflation remains above 4 per cent and “monetary policy must continue to be actively disinflationary to ensure fuller transmission and anchoring of inflation expectations,’’ he said.

The moderation in October inflation was observed in all components of CPI.

The RBI’s stance echoes the global trend of central banks signalling an enduring period of higher rates, further emphasising the need for a cautious yet progressive approach in navigating the financial landscape.

Retail or consumer price index-based CPI inflation moderated to 4.9 per cent in October from 7.4 per cent in July.

The ongoing rabi sowing progress for key crops like wheat, spices and pulses needs to be closely monitored, Das said, adding elevated global sugar prices is also a matter of concern.

The RBI, in its bi-monthly policy statement, on Friday retained benchmark interest rates at 6.5 per cent for the fifth time in a row. The repo rate was last hiked in February.

There has been broad-based easing in core inflation, indicative of successful disinflation through monetary policy actions, the statement added.

On the positive side, global commodity prices, particularly, agricultural commodity prices, have softened, except rice. For highly import-dependent food items like edible oils, international prices continue to remain soft. Domestic milk prices are stabilising. Pro-active supply side interventions by the government are also containing domestic food price pressures, the RBI said, adding crude oil has softened considerably, though it may remain volatile.

“Taking into account these factors and on the assumption of normal monsoons, CPI inflation is projected at 5.4 per cent for 2023-24, with Q3 at 5.6 per cent and Q4 at 5.2 per cent,’’ it said.

No plans to loosen rates, inflation top priority: Das

The RBI Governor said there is no plan to loosen interest rates as inflation continues to be the top priority for the central bank.

Speaking to reporters here, Das clarified that the inclusion of “over tightening” in his statement while announcing the fifth consecutive status quo in rates, should not be construed as anything else.

A “loosening’’ in rates is not on the table, Das added. Making it clear inflation is the top priority for the central bank, Das said a few months of satisfactory data - the headline number dropped to 4.87 per cent in October - should not lead to any complacency and added that we have a long way to cover on inflation management.

Deputy Governor Michael Patra said looking at the economic growth in the first half and the high-frequency data for October and November, the upward revision in FY24 GDP growth rate at 7 per cent is a “conservative estimate”.

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