Inflation may drop to 5.2 pc next FY on normal rains: RBI
Inflation may drop to 5.2 pc next FY on normal rains: RBI

New Delhi: The Reserve Bank of India (RBI) is still very concerned about high inflation, which has raised rates aggressively so far this year.

An RBI report says that the pressure might ease next fiscal year if there are normal rains and more normalisation of global supply chains without any shocks from the outside.

The (RBI) expects that retail inflation will be under control at 5.2 percent in the next financial year, which starts in April. This is less than the 6.7 percent it predicted for this year.

In its "Monetary Policy Report September 2022," the RBI said, "Structural model estimates show that inflation will average 5.2 percent in 2023-24, assuming a normal monsoon, a gradual normalisation of supply chains, and no more shocks from the outside or from government policy." The central bank's job is to keep inflation at the store level between 2 percent and 6 percent.

But inflation has been above the RBI's upper tolerance level since January 2022. This is mostly because of supply shocks caused by the war between Russia and Ukraine, which started in late February. Both countries are major sources of food grains, edible oil, fertilisers, and energy resources like crude oil and natural gas. Even though inflation has gone down since April, when it reached a high of 7.8 percent, the central bank said in a report that it is still too high. The Reserve Bank raised the key repo rate by 0.50 percentage points on Friday, making it 5.90 percentage points. This was done to bring inflation under control.

From May to August of this fiscal year, the policy repo rate was raised by 140 basis points, or 1.4 percent. The RBI's six-person Monetary Policy Committee (MPC) met four times from April to September 2022, including a meeting that wasn't on the normal schedule in May. This was because of a sharp rise in commodity prices around the world and uncertainty about how quickly monetary policy would be normalised around the world.

RBI Governor Shaktikanta Das said when he announced the policy that the world had already been hit by two major shocks in the last two and a half years: the pandemic and the situation in Ukraine. He also said that aggressive monetary policy actions by central banks around the world would be a third shock.

The Reserve Bank of India (RBI) thinks that inflation will stay above the upper tolerance level of 6 percent for the first three quarters of 2022-23 (until December), but that it will be under control by January 2023. It predicts that retail inflation will average 5.8 percent from January to March of 2022-23 and then drop to 5 percent from April to June of 2023-24.

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