RBI MPC June 2023: Announcing the decisions of Monetary Policy Committee meeting, RBI Governor Shaktikanta Das on June 8 said headline inflation is above the target of 4% and expected to remain so during rest of the year. On the other hand, RBI has lowered the retail inflation projection to 5.1% during FY’24 from earlier estimate of 5.2%.
Das said retail inflation has been below the upper band of 6% for the last two years.
He said close and continued vigil on evolving inflation is absolutely necessary. MPC will continue to take policy actions promptly and appropriately to keep inflation expectations firmly anchored. He said that the central bank is keeping ‘Arjuna’s eye’ on prevailing inflation conditions.
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Das added MPC decided to remain focused on withdrawal of accommodation of policy stance.
RBI Monetary Policy Committee also decided to keep repo rate unchanged at 6.5%. While announcing the policy rates, RBI Governor said Indian economy and financial sector stand strong and resilient amidst unprecedented global headwinds.
The MPC met in the backdrop of consumer price-based (CPI) inflation declining to an 18-month low of 4.7% in April.
The Reserve Bank governor recently indicated that the May print would be lower than the April numbers. The CPI for May is scheduled to be announced on June 12.
After the last MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5% repo rate. Prior to that the central bank had cumulatively hiked the repo rate by 250 basis points since May 2022 in a bid to contain inflation.
The government has mandated the RBI to ensure CPI inflation at 4% with a margin of 2% on either side.
Meanwhile, according a Reuters poll of economists, consumer price inflation in India likely cooled to a 20-month low in May as food price rises slowed further, drawing closer to the Reserve Bank of India’s medium-term target of 4%,
Despite heat waves across the agriculture-dependent country, rises in food prices are expected to be kept in check by lower input costs and the government’s regular intervention to curb price spikes.
Food inflation, which accounts for nearly half of the consumer price index (CPI) basket, eased to 3.84% in April and was expected to have declined further last month.
The June 2-7 Reuters poll of 45 economists predicted inflation measured by the consumer price index (CPI) rose at an annual rate of 4.42% in May, down from 4.70% in April and set to be the lowest since October 2021.
Predictions ranged from 4.10% to 5.10%, below the RBI’s 6.00% upper tolerance limit for a third consecutive month.
“In May, we are expecting a noticeable decline in the food index, especially vegetables, oils, and cereals. Fuel and core will also be down,” wrote Sonal Badhan, an economist at Bank of Baroda, in the Reuters poll.
“Improvements in supply chains and the base effect are leading to a moderation in domestic food prices. Internationally, oil prices have also come down, which in turn benefits the imported inflation component.”
The survey also showed wholesale price inflation, the change in producer prices, likely slipped to an annual -2.35% last month from -0.92% in April.
Signs of easing price pressures would provide breathing room for the RBI, which is widely anticipated to hold its key repo rate unchanged at 6.50% at the conclusion of its monetary policy meeting on Thursday.
A separate Reuters poll in May showed consumer price inflation not dropping to or below the RBI’s 4% medium-term target anytime soon, suggesting the door is still open for more rate hikes.
Inflation was expected to average 5.1% and 4.8% for fiscal years 2023/24 and 2024/25, respectively.
(With Agency inputs)
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