RBI Governor cautious on inflation, says need to keep ‘Arjuna’s eye’ on scenario

Headline CPI inflation has come down during March-April 2023 to 4.7 per cent in April, the lowest reading since November 2021.

On Thursday, the sharp correction in the last hour trade pulled down the Sensex below the 63,000-mark to 62,848.64, down 0.47 per cent, as realty shares faltered sharply after the recent upsurge. While rate hike pause by the MPC was on expected lines, subdued commentary by the RBI on inflation for this fiscal year dampened sentiments.

“Our goal is to achieve the target of 4.0 per cent, going forward. The continuation of the stance of withdrawal of accommodation should be seen from this perspective,” he said.

According to Das, the decision to pause was based on the need to assess the cumulative impact of past monetary policy actions while charting out the future course.

“Subsequent incoming data suggest that while risks to near-term inflation have moderated somewhat, pressure remains during the second half of the year which needs to be watched and addressed at the appropriate time,” Das said.

According to the RBI’s survey, inflation expectations of households for the three months to one year ahead horizon have moderated by 60 to 70 basis points since September 2022. This would indicate that anchoring of expectations is underway and that our monetary policy actions are yielding the desired results, Das said.

“This also provides us the space to keep the policy rate unchanged in this meeting of the MPC,” he said.

Monetary policy tightening and supply side measures contributed to the fall in inflation. The easing was observed across food, fuel and core (CPI excluding food and fuel) categories. Food inflation declined to 4.2 per cent in April, while core inflation moderated to 5.1 per cent. “A durable disinflation in the core component would be critical for a sustained alignment of the headline inflation with the target,” Das said in his statement.

Going forward, with the recent rabi harvest remaining largely immune to the adverse weather events, the near-term inflation outlook looks more favourable than at the time of the April MPC meeting, Das said.

The forecast of a normal south-west monsoon by the India Meteorological Department augurs well for the kharif crops. “Uncertainties, however, remain on the spatial and temporal distribution of monsoon and on the interplay between El Nino and the Indian Ocean Dipole. Geopolitical tensions; uncertainties around the monsoon and international commodity prices, especially sugar, rice and crude oil; and volatility in global financial markets pose upside risks to inflation,” he said.

Taking into account these factors and assuming a normal monsoon, CPI inflation is projected at 5.1 per cent for 2023-24, with Q1 at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent, according to the RBI.