This is the first set of inflation numbers after the government announced that it is keeping the inflation-targeting framework for the central bank unchanged for the five-year period beginning 1 April, ending speculation that a more relaxed inflation goal may be adopted to boost growth.
The Reserve Bank of India governor Shaktikanta Das had earlier defended the existing inflation target, contending that any further loosening would undermine the central bank’s ability to set effective monetary policy. The inflation mandate requires RBI to keep inflation at 4%, with a 2 percentage point leeway on either side.
RBI in its latest monetary policy review has kept its policy rates unchanged sticking to its accommodative stance to focus on economic recovery from the worst recession in at least forty years in FY21. There is growing concern that the second wave of the coronavirus infections could derail the nascent economic recovery.
The RBI kept repo rate or its key lending rate at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%.
The Monetary Policy Committee last week said the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. “The bumper foodgrains production in 2020-21 should sustain softening of cereal prices going forward. While the prices of pulses, particularly tur and urad, remain elevated, the incoming rabi harvest arrivals in the markets and the overall increase in domestic production in 2020-21 should augment supply which, along with imports, should enable some softening of these prices going forward."
While edible oils inflation has been ruling at heightened levels with international prices remaining firm, reduction of import duties and appropriate incentives to enhance productivity domestically could work towards a better demand-supply balance over the medium-term. Pump prices of petroleum products have remained high. Reduction of excise duties and cesses and state level taxes could provide some relief to consumers on top of the recent easing of international crude prices. This could slow down the propagation of second-round effects. The impact of high international commodity prices and increased logistics costs are being felt across manufacturing and services," the MPC added.
The MPC projected inflation as 5.2% in June quarter, 5.2% in September quarter, 4.4% in December quarter and 5.1% in March quarter, with risks broadly balanced.
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