Reserve Bank Governor Urjit Patel on Wednesday said the central bank would continue to be vigilant on inflation and keep its commitment of achieving the medium-term target for headline inflation of 4 per cent on a durable basis.
Hiking the Repo rate by 25 basis points to 6.25 per cent on Wednesday, the Monetary Policy Committee of the RBI marginally revised upwards its inflation projection for the current fiscal on firming crude oil prices in the global market. Retail inflation, based on consumer price index (CPI), rose sharply to 4.6 per cent in April driven mainly by a significant increase in prices excluding food and fuel, the RBI said in a statement released after the three-day Monetary Policy Committee meeting.
Since the MPC’s meeting in early April, the price of Indian basket of crude surged from $ 66 a barrel to $ 74 — about 12 per cent. Along with increase in other global commodity prices and recent global financial market developments, this has resulted in a firming up of input cost pressures. Taking in account various factors, the RBI revised the CPI inflation for 2018-19 to 4.8-4.9 per cent in first half of the fiscal and 4.7 per cent in the latter, including the HRA impact for central government employees, with risks tilted to the upside.
In the last policy, the RBI had estimated inflation in the range of 4.7-5.1 per cent in H1; and 4.4 per cent in H2, including the HRA impact. The MPC resolution further said that excluding the impact of HRA revisions, CPI inflation is projected at 4.6 per cent in H1 and 4.7 per cent in H2. In April, RBI had projected the figures at 4.4-4.7 per cent and 4.4 per cent, respectively.
The RBI further said that impact of the revision in the MSP formula for kharif crops is not possible to assess at this stage in the absence of adequate details. Also, if the monsoon is normal and well-distributed temporally and spatially, it may help keep food inflation benign. Crude oil prices have been volatile recently and this imparts considerable uncertainty to the inflation outlook – both on the upside and the downside, RBI noted.
Dinabandhu Mohapatra, MD & CEO, Bank of India, said, “the hike in the benchmark policy rate shows the RBI’s concern over spikes in retail inflation, especially food inflation, in recent months. More importantly, the RBI has revised upwards its CPI forecast. This indicates RBI will remain more vigilant on retail price levels in the coming months.
“The RBI has hiked its repo rate by 25 basis points but retained the stance of the policy neutral and has not indicated any withdrawal of accommodation. This means, the future course of the policy remains open. It will be driven by the trajectory of inflation,” said Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank.