As India battles to break out of the Covid cloud and the severe setback inflicted by the pandemic on the economy, the Reserve Bank of India’s Monetary Policy Committee (MPC) expects inflation to remain high and the consumer price index (CPI) for the October-December quarter of FY21 is projected at 6.8 per cent.
In his video statement, post the MPC’s meet, RBI Governor Shaktikanta Das noted that CPI inflation rose sharply to 7.3 per cent in September and further to 7.6 per cent in October 2020, with some evidence that price pressures are spreading.
“The outlook for inflation has turned adverse relative to expectations in the last two months,” he said, adding that while cereal prices may continue to soften with the bumper kharif harvest arrivals and vegetable prices may ease with the winter crop, other food prices are likely to persist at elevated levels.
He said that cost-push pressures continue to impinge on core inflation, which could remain sticky.
Taking into consideration all these factors, CPI inflation is projected at 6.8 per cent for Q3, 2020-21, 5.8 per cent for Q4, 2020-21 and 5.2 to 4.6 per cent in the first half of FY22, with risks broadly balanced, Das said.
While keeping the repo rate unchanged at 4 per cent in view of the high inflation, the MPC has also maintained the accommodative stance and assured that it would continue for rest of the fiscal.
“It also decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward,” Das said.
