RBI MPC meet: Central bank raises inflation projections above 6%

Inflation is projected at 6.7% for the current fiscal year. RBI Governor Shaktikanta Das said that inflation is expected to be at 7.5% in Q1, 7.4% in Q2, 6.2% in Q3 and 5.8% in Q4. Three-fourths of the increase in inflation is attributed to the food group.

The surge in headline inflation is seen across categories. The global geopolitical situation remains fluid and commodity markets are on edge, rendering heightened uncertainties to domestic conditions.

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Upside risks to inflation remain due to commodity price hikes globally, elevated crude prices, and poultry feed and tomato prices.

“Inflation has steeply increased much beyond the tolerance level. The process of recovery in emerging market economies is also getting affected. But the Indian economy has remained resilient. We have started a gradual withdrawal of the extraordinary accommodation. RBI will continue to be proactive and decisive in mitigating the fallout of the geopolitical crises on our economy. Our steps will be measured and calibrated,” said Das.

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‘The ongoing war is turning out to be a dampener on global trade and growth. Domestic economic activity is gaining traction while inflation pressures have intensified. Inflationary pressures have become broad-based and remain largely driven by supply shocks. The Repo rate remains below its pre-pandemic level. Inflation is likely to remain above the upper tolerance of 6% for the first three quarters of this year. Sustained high inflation could unhinge inflation expectations”, he added.

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“Information for April-May suggests domestic economic recovery is firm. Surveys show capacity utilisation in the manufacturing sector increased to 74.5% in January-March,” Das said.