RBI’s MPC revises inflation estimate for FY’18 upwards
MUMBAI: The Reserve Bank's monetary policy committee raised its inflation projection for FY'18 over its February estimates. The Gross value added or GVA growth could strengthen to 7.4% in the current fiscal ending March'18 from 6.7% in the previous year.
For 2017-18, the MPC has projected inflation at an average of 4.5% in the first half of the year and 5% in the second half, higher than 4% projection made in February.
"The MPC saw the path of inflation in 2017-18 as challenged by upside risks and unfavourable base effects towards the second half of the year." RBI governor Urijit Patel said in his post policy media conference. "Accordingly inflation developments have to closely and continually monitored with food price pressures kept in check so that inflation expectations can be reanchored."
" We believe that risks to the RBI's 4% inflation target and to the RBI's inflation projection of 5.0% in H2 FY18 are to the upside," said Nomura Research in a note to clients. "We expect higher rural wage growth, a narrowing output gap and adverse base effects to push inflation closer to 5.5-6.0% in H2 FY18."
As for growth, professional forecasters surveyed by the Reserve Bank in March 2017 expected real GVA growth to accelerate from 6.5 per cent in Q4'17 to 7.6 per cent in Q4'18, led by growth in services and industry.
Considering the baseline assumptions, the fast pace of remonetisation, survey indicators and updated model forecasts, RBI staff's baseline scenario projects that real GVA growth will improve from 6.6 per cent in Q3'17 to 7.0 per cent in Q1'18 and 7.4-7.6 per cent in the remaining three quarters of 2017-18, with risks evenly balanced around this baseline path.
"Official growth projections reflect their optimistic outlook limiting the need to take an accommodative policy stance" said Radhika Rao, chief economist, DBS.
Looking beyond 2017-18 and assuming a normal monsoon, a congenial global environment, no policy induced structural change and no supply shocks, RBi estimates real GVA growth of 8.1 per cent in 2018-19.
For 2017-18, the MPC has projected inflation at an average of 4.5% in the first half of the year and 5% in the second half, higher than 4% projection made in February.
"The MPC saw the path of inflation in 2017-18 as challenged by upside risks and unfavourable base effects towards the second half of the year." RBI governor Urijit Patel said in his post policy media conference. "Accordingly inflation developments have to closely and continually monitored with food price pressures kept in check so that inflation expectations can be reanchored."
" We believe that risks to the RBI's 4% inflation target and to the RBI's inflation projection of 5.0% in H2 FY18 are to the upside," said Nomura Research in a note to clients. "We expect higher rural wage growth, a narrowing output gap and adverse base effects to push inflation closer to 5.5-6.0% in H2 FY18."
As for growth, professional forecasters surveyed by the Reserve Bank in March 2017 expected real GVA growth to accelerate from 6.5 per cent in Q4'17 to 7.6 per cent in Q4'18, led by growth in services and industry.
Considering the baseline assumptions, the fast pace of remonetisation, survey indicators and updated model forecasts, RBI staff's baseline scenario projects that real GVA growth will improve from 6.6 per cent in Q3'17 to 7.0 per cent in Q1'18 and 7.4-7.6 per cent in the remaining three quarters of 2017-18, with risks evenly balanced around this baseline path.
"Official growth projections reflect their optimistic outlook limiting the need to take an accommodative policy stance" said Radhika Rao, chief economist, DBS.
Looking beyond 2017-18 and assuming a normal monsoon, a congenial global environment, no policy induced structural change and no supply shocks, RBi estimates real GVA growth of 8.1 per cent in 2018-19.
