3 min read.Updated: 01 Aug 2022, 06:24 AM ISTAditi Nayar
India’s CPI inflation may fall within MPC’s tolerance band of 2-6% by middle of Sep quarter
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The June monetary policy review had seen a stepped-up increase of 50 basis points (bps) in repo rate, following the Monetary Policy Committee’s (MPC’s) off-cycle hike of 40 bps in May. With commodity prices retreating amid fears of a global recession, there is a glimmer of hope that India’s consumer price index (CPI) inflation will fall within the MPC’s tolerance band of 2-6% by the middle of September quarter. Notwithstanding an aggressive US Federal Reserve, we foresee modest rate hikes of 60 bps from the MPC spread over two policy reviews, followed by a pause to assess the robustness of growth. In June, the MPC had sharply raised its CPI inflation forecast for FY23 to 6.7% with risks broadly balanced from the 5.7% projected in April. Subsequent data revealed that CPI inflation readings moderated to 7.0% each in May-June, from the alarming 7.8% in April, while remaining well above the upper tolerance level of 6.0%. However, the average reading for the quarter, of 7.3%, did end up mildly trailing the MPC’s forecast of 7.5%.
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