Mumbai: In comparison to its April forecast of 5.2 percent, the Reserve Bank of India (RBI) has reduced India's inflation outlook for 2023–2024 to 5.1 percent.
Retail inflation, also known as the Consumer Price Index, is expected to be 4.6% in Q1, 5.2% in Q2, 5.4% in Q3, and 5.2% in Q4, said RBI Governor Shaktikanta Das, who read out the monetary policy statement on Thursday following a three-day discussion.
India's headline inflation decreased from March to April 2023 to 4.7% in April, which was the lowest level since November 2021.
"This approach was aided by supply-side policies and tighter monetary policy. Inflation was seen to be falling in the food, fuel, and core (CPI excluding food and fuel) categories, said Das. "A durable disinflation in the core component would be critical for a sustained alignment of the headline inflation with the target," the economist said.
The recent Rabi harvest was "largely immune" to bad weather, said Das, thus the near-term inflation outlook is better than it was at the April policy meeting. "I want to highlight once more that headline inflation is still over the target and that staying within the tolerance zone is insufficient. Going forward, our aim is to reach the target of 4%," he said.
The repo rate will remain at 6.5 percent, as per a unanimous decision by the RBI's monetary policy committee. The interest rate at which the RBI loans money to other banks is known as the repo rate. Loan and deposit rates are likely to stay the same due to the steady key interest rate.
The central bank may have decided to again pause the main interest rate due to the ongoing decrease in inflation, which is currently at an 18-month low. The majority of observers had predicted that the RBI would hold the repo rate same.
Many nations, especially mature ones, have concerns about inflation, but India has done a good job of controlling its trajectory. The repo rate had been halted by the RBI during its April meeting, the first in 2023–2024. With the exception of the halt in April, the RBI increased the repo rate by a total of 250 basis points, or 6.5 percent, since May 2022 in an effort to combat inflation. An weapon of monetary policy that normally works to reduce demand in the economy and lower inflation is raising interest rates.
Retail inflation in India exceeded the RBI's 6% objective for three consecutive quarters and only managed to return to the RBI's safe level in November 2022. If the CPI-based inflation is outside the 2–6% range for three consecutive quarters, the flexible inflation targeting framework considers the RBI to have failed in managing price increases.
Regarding the GDP projection, the RBI projects 6.5% GDP growth for India in 2023–2024, with Q1 GDP growth of 8%, Q2 GDP growth of 6.5%, Q3 GDP growth of 6%, and Q4 GDP growth of 5.7%. Shaktikanta Das, governor of the RBI, stated that the central bank views the risks associated with these GDP figures as evenly balanced while reading the monetary policy statement today.
According to preliminary estimates recently made public by the National Statistical Office (NSO), real GDP growth for 2022–23 was 7.2% instead of the predicted 7.0%. The administration anticipates a future modification of the GDP figures for 2022–2023.
Various international agencies have predicted that India will be one of the fastest-growing economies in 2023–2024, underpinned by high growth in private consumption and continuous improvement in private investment. This prediction is despite significant global headwinds and tighter domestic monetary policy.
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