Keeping a “Arjuna’s Eye” on inflation, the RBI MPC predicts that it will exceed its target in 2023

Headline inflation is over the objective of 4% and is anticipated to stay above that level for the remainder of the year, according to RBI Governor Shaktikanta Das, who announced the outcomes of the Monetary Policy Committee meeting on June 8. However, the RBI has revised its prior forecast of 5.2% retail inflation downward to 5.1% for FY24.

Retail inflation, according to Das, has remained below the upper bound of 6% for the last two years.

He said that it is essential to keep a careful eye on inflation as it changes.To keep inflation expectations firmly anchored, MPC will continue to implement policy measures in a timely and appropriate manner. The central bank, according to him, is keeping a “Arjuna’s eye” on the current inflation situation.

Das farther MPC made the decision to keep its attention on the removal of policy stance accommodation.

The RBI Monetary Policy Committee also chose to maintain the repo rate at 6.5%. The RBI Governor said that despite extraordinary global challenges, the Indian economy and banking sector are robust and resilient.

The consumer price index (CPI) inflation rate fell to an 18-month low of 4.7% in April when the MPC convened against this background.

Recently, the governor of the Reserve Bank predicted that the May print will be lower than the April figures. On June 12, the CPI for May is expected to be released.

The RBI stopped raising interest rates at the most recent MPC meeting in April and maintained the 6.5% repo rate. Prior to that, the central bank has raised the repo rate by a total of 250 basis points since May 2022 in an effort to keep inflation under control.

The RBI has been instructed by the government to maintain CPI inflation at 4% with a 2% tolerance on each side.

In the meanwhile, a Reuters survey of experts found that consumer price inflation in India likely decreased to a 20-month low in May as increases in food prices slowed down further, getting closer to the Reserve Bank of India’s medium-term objective of 4%.

Despite widespread heatwaves, the agriculture-dependent nation’s reliance on reduced input costs and routine government action to control price surges should prevent increases in food prices.

Food inflation, which makes up over 50% of the CPI basket, fell to 3.84% in April and was predicted to have decreased even more last month.

Inflation as measured by the consumer price index (CPI) grew at an annual rate of 4.42% in May, down from 4.70% in April and on track to be the lowest since October 2021, according to a June 2–7 Reuters poll of 45 analysts.

Predictions fell below the RBI’s top tolerance ceiling of 6.00% for a third consecutive month, ranging from 4.10% to 5.10%.

“We anticipate a considerable drop in the food index in May, particularly for vegetables, oils, and grains. “Fuel and core will also be down,” said Bank of Baroda analyst Sonal Badhan in the Reuters survey.

“The base effect and improvements in supply networks are causing a moderation in domestic food costs. Oil prices have decreased globally as well, which helps the imported inflation component.

According to the study, wholesale price inflation, which measures the change in producer prices, likely decreased last month to an annual -2.35% from -0.92%.

The RBI, which is expected to keep its benchmark repo rate steady at 6.50% at the end of its monetary policy meeting on Thursday, would have breathing space if there were signs of reducing pricing pressures.

According to a second Reuters poll conducted in May, consumer price inflation is not expected to reach or fall below the RBI’s medium-term objective of 4% any time soon, indicating that additional rate increases are still possible.

For the fiscal years 2023–23 and 2024–25, inflation was projected to average 5.1% and 4.8%, respectively.