Despite the fact that inflation is likely to exceed the RBI’s medium-term objective of 4% by the end of FY23, Governor Shaktikanta Das has called for “continued policy support” for the economy.

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Das stated on February 10 in a statement following the completion of the central bank’s Monetary Policy Committee (MPC) meeting that inflation will most likely peak in the current quarter.

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“On balance, headline inflation is expected to peak in Q4:2021-22 within the tolerance band and then moderate closer to target in H2:2022-23, providing room for monetary policy to remain accommodative,” the governor said in his statement.

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The Reserve Bank of India (RBI) has maintained its Consumer Price Index (CPI) inflation prediction for FY22 at 5.3%. CPI inflation is expected to fall to 4.5% in FY23.

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The RBI anticipates quarterly CPI inflation to be 5.7% in Q4 FY22, 4.9% in Q1 FY23, 5.0% in Q2 FY23, 4.0% in Q3 FY23, and 4.2% in Q4 FY23.

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The RBI Governor stated that the CPI inflation data for January 2022, which is scheduled to be reported on February 14, would move even closer to the upper bound of the central bank’s inflation objective of 2-6%, owing to an unfavourable base impact.

CPI inflation reached 5.59% in December 2021. Economists predict a larger hike in January 2022.

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Economists view the RBI’s CPI inflation prediction, as well as the decision to keep the repo and reverse repo rates at 4.00% and 3.35%, respectively, as ‘dovish.’

“Sometimes markets expect dessert, but then realise that the main course is still not over,” said Aurodeep Nandi, Nomura’s India Economist.

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According to Nandi, the RBI has been surprised by “not only doubling down on its now-familiar orthodoxy of keeping rates and stance unchanged but also expressed a very dovish outlook for inflation for FY23”.

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“This comes despite higher oil and commodity prices, growth-supporting fiscal policy, continued economic normalisation, and a distinctly hawkish Federal Reserve. This suggests that the RBI is likely to remain behind the curve until macro circumstances warrant a shift of gears,’ Nandi added.