RBI Retains Inflation Projection At 6.7% In 2022-23

The Reserve Bank of India (RBI) on Friday retained the inflation projection at 6.7 per cent in 2022-23, with Q2 at 7.1 per cent; Q3 at 6.5 per cent and Q4 at 5.8 per cent, with risks evenly balanced. 

In the Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das said that CPI inflation is projected to further reduce to 5.0 per cent in Q1:2023-24.

"Global geopolitical developments are weighing heavily on the domestic inflation trajectory. Inflation inched up to 7.0 per cent in August from 6.7 per cent in July," he said.

Das also said that acute imported inflation pressures felt at the beginning of the financial year have eased but remain elevated across food and energy items. Edible oil price pressures are likely to remain contained on improved supply from key producing countries and measures taken by the government. 

"Going forward, there could be some tapering of selling price increases on account of easing supply conditions and softening of industrial metal and crude oil prices," the Governor added.

He added that with services activity showing a strong rebound and some improvement in pricing power, risks of higher pass-through of input costs, however, do remain.

There are also upside risks to food prices. Cereal price pressure is spreading from wheat to rice due to the likely lower Kharif paddy production, according to him.

The lower sowing for Kharif pulses could also cause some pressure. 

"The delayed withdrawal of monsoons and intense rain spells in various regions have already started to impact vegetable prices, especially tomatoes. These risks to food inflation could have an adverse impact on inflation expectations," he said.

The Indian basket crude oil price was around USD 104 per barrel in H1:2022-23. The central bank is expecting it to be USD 100 per barrel in H2:2022-23. 

Das also explained that the extraordinary global circumstances that caused the heightened inflationary pressures have impacted both AEs and emerging economies. 

"India is, however, better placed than many of these economies. If high inflation is allowed to linger, it invariably triggers second order effects and unsettles expectations," he said.