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India's retail inflation in the month of July eased to 5.59%, bringing it back within Reserve Bank of India (RBI)'s target range, on falling food prices and an easing of supply chain disruptions, the government data showed on Thursday. It was 6.26% in June and 6.73% in July 2020.

The RBI has been mandated by the government to keep retail inflation at 4% with a margin of 2% on either side.

According to the data released by the National Statistical Office (NSO), inflation in the food basket slowed down to 3.96 per cent in July from 5.15 per cent in the previous month.

As per the Reuters poll of August 5-9, 48 economists showed consumer price inflation eased to 5.78% last month from 6.26% in June.

Further, the RBI projected the CPI inflation at 5.7% during 2FY22 - 5.9 per cent in the second quarter, 5.3 per cent in third, and 5.8 per cent in the fourth quarter of the fiscal, with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5.1 per cent.

Meanwhile, the country's factory output for the month of June rose to 13.6% in June, government data showed on Thursday. The IIP had contracted 16.6% in June 2020.

The mining output climbed 23.1% and power generation increased by 8.3% in June, the data stated. During April-June this year, the IIP grew by 45% against a contraction of 35.6% in the same quarter last year.

It shrank 57.3 per cent in April 2020 due to a decline in economic activities in the wake of the lockdown to curb the spread of coronavirus infections.

A deadly second wave of coronavirus infections in April and May led to many states reimposing lockdowns, constraining supply chains and leading to a spike in inflation.

However, that did not prompt the Monetary Policy Committee to raise the key repo rate from 4.0% this month as the focus remained more on containing the economic fallout from the pandemic.

The RBI also retained its growth estimate at 9.5% for this fiscal year.

Union Finance Minister Nirmala Sitharaman earlier today said that economy has not reached the level where the central bank can begin pulling back liquidity as Asia's third-largest economy is still recovering from the shock of two major waves of coronavirus.

"I am glad that RBI understands that quicker retrieval of the liquidity from the economy may not do the necessary things to win," Sitharaman said at CII annual session 2021 event.

"They have not given any indication about wanting to suck out the liquidity that is available there," she added.

She said while India will take measures to contain inflation, growth will be a priority in the current environment.

India's inflation has been above the RBI's tolerance band of 6% for the last two months, which prompted the central bank to raise its inflation forecast even as it held its key rates at record lows earlier this month.

To counter the economic fallout of the pandemic, the central bank has pumped in massive amounts of liquidity through various measures like open market operations over the last year, leaving the banking system with an average surplus of around 6 lakh crore.

Sitharaman said that it is "very clear" that India's economy has started recovering as exports have begun to grow rapidly and tax collection has increased.

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