Mumbai: The Reserve Bank of India (RBI) said Friday it expects retail inflation to be at 5.1 per cent in the current financial year supported by the progress of monsoon and effective supply-side interventions by the government. The projection is well within the Monetary Policy Committee’s (MPC) target to keep the rate of inflation at four per cent with an upper or lower tolerance level of two per cent. However, the apex bank remained equally cautious about the upside risks due to rising global commodity prices.
Moreover, the persistence of the second wave of the pandemic and the consequent restrictions on activity on a virtually pan-India basis puts upside risks to inflation, RBI observed in its monetary policy review.
Presenting the second bi-monthly monetary policy review, RBI Governor Shaktikanta Das announced that the key repo rate – the short-term lending rates to banks – will be kept unchanged at four per cent.
The favourable base effects that brought about moderation in headline inflation by 1.2 percentage points in April, may persist through the first half of the year, conditioned by the ‘progress of the monsoon and effective supply-side interventions by the government’, Das said.
Taking into consideration the measures taken so far as well as the upside risks, Das said the CPI (Consumer Price Index) inflation is projected at 5.1 per cent during 2021-22.
This consists of 5.2 per cent in the first quarter, 5.4 per cent in the second quarter, 4.7 per cent in the third quarter and 5.3 per cent in the fourth quarter of this fiscal, with risks broadly balanced, added Das.
“… Insulating prices of essential food items from supply side disruptions will necessitate active monitoring and preparedness for coordinated, calibrated and timely measures by both Centre and state governments to prevent emergence of supply-side bottlenecks and increase in retail margins,” the RBI governor informed.
The retail inflation came in at 4.3 per cent in April which has provided some cushion as well as policy side elbow room, RBI said. The CPI retail inflation data for the month of May is awaited in the third week of this month.
Retail inflation is a key input for the Reserve Bank to decide on its monetary policy every two months.