While announcing the bi-monthly monetary policy, the Reserve Bank of India (RBI) lowered CPI inflation target for the fourth quarter of FY21 and remaining FY22. RBI has maintained a status quo with policy repo rate staying at 4% with an accommodative stance.
RBI in its monetary policy statement today said, "CPI inflation has been revised to 5.2% in Q4:2020-21, 5.2% to 5.0% in H1:2021-22 and 4.3% in Q3: 2021-22, with risks, broadly balanced."
Earlier in December 2020 policy, RBI has projected inflation at 6.8% for Q3:2020-21, 5.8% for Q4:2020-21; and 5.2% to 4.6% in H1:2021-22, with risk broadly balanced.
In the latest policy, RBI while lowering inflation target said, "With the larger than anticipated deflation in vegetable prices in December bringing down headline closer to the target, it is likely that the food inflation trajectory will shape the near-term outlook. The bumper Kharif crop, rising prospects of a good rabi harvest, larger winter arrivals of key vegetables and softer egg and poultry demand on avian flu fears are factors auguring a benign inflation outcome in the months ahead. On the other hand, price pressures may persist in respect of pulses, edible oils, spices and non-alcoholic beverages."
However, RBI added, "The outlook for core inflation is likely to be impacted by further easing in supply chains; however, broad-based escalation in cost-push pressures in services and manufacturing prices due to increase in industrial raw material prices could impart upward pressure."
Furthermore, RBI said that there could be increased pass-through to output prices as demand normalises as indicated in the Reserve Bank’s industrial outlook, services and infrastructure outlook surveys and purchasing managers’ indices (PMIs) and firms regain pricing power. International crude oil prices may remain supported by demand to build up on optimism from vaccination and continuing production cuts by OPEC plus. The crude oil futures curve has become downward sloping since December 2020.
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