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Monetary policy: RBI stays firm on CPI target for FY22, mulls inflation at 5% in Q1 and Q2 of FY23

In its monetary policy statement, RBI said that the "inflation trajectory, going forward, will be conditioned by a number of factors."

December 08, 2021 12:36 IST | India Infoline News Service
While maintaining the status quo in the policy rate and stance, the Reserve Bank of India (RBI) also stayed firm on its CPI inflation target for the entire fiscal. Although, RBI has trimmed its forecast for inflation during the fourth quarter of FY22 but raised its target for the third quarter (October - December 2021). Also, RBI has reduced its target for CPI in Q1 of the next fiscal (FY23).

In its monetary policy statement, RBI said that the "inflation trajectory, going forward, will be conditioned by a number of factors."

As per RBI, the flare-up in vegetable prices due to heavy rains in October and November is likely to reverse with the winter arrivals. Rabi sowing is progressing well and is set to exceed last year’s acreage.

RBI stated that recent pro-active supply-side interventions by the Government continue to restrain the pass-through of elevated international edible oil prices to domestic retail inflation.

"Crude prices have seen a significant correction in the recent period. Cost-push pressures from high industrial raw material prices, transportation costs, and global logistics and supply chain bottlenecks continue to impinge on core inflation," RBI added.

RBI also said, "The slack in the economy is muting the pass-through of rising input costs to output prices."

Taking into consideration the above factors, RBI predicts CPI at 5.3% for FY22 which is the same as its previous projection.

RBI, however, estimates CPI at 5.1% in Q3 and 5.7% in Q4 with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5% and for Q2 at 5%.

Earlier, in October 2021 policy, RBI had projected CPI inflation at 5.3% for 2021-22; 5.1% in Q2, 4.5% in Q3; 5.8% in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5.2%.

India's consumer price index (CPI) or retail inflation picks up to 4.48% in October 2021 compared to the previous month due to a spike in fuel and edible oil prices. In September 2021, inflation was at 4.35%. The consumer food price index (CFPI) came at 0.85% in October 2021, also higher from the reading of 0.68% in September 2021. The food inflation was lower however from 11% in October 2020.

CPI for November 2021 will be presented later this month.

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