Headline inflation in India rose to 7.8 per cent in July due to a surge in prices of food items like wheat, rice and vegetables, including tomatoes, to later fall to 6.8 per cent in August. Inflation data for September is due in next few days
Our Bureau
New Delhi/Mumbai
As has been expected by the business and trade, the monetary policy committee of the Reserve Bank of India (RBI) in its October review meeting decided to keep the policy repo rate unchanged at 6.5 per cent, maintaining status quo for the fourth straight occasion. The repo rate is the rate of interest at which the RBI lends to other banks.
At the same time, it retained the overall 2023-24 GDP growth and inflation forecast unchanged. Retail inflation is projected at 5.4 per cent for 2023-24, with Q2 (Jul-Sep) at 6.4 per cent, Q3 (Oct-Dec) at 5.6 per cent and Q4 (Jan-Mar) at 5.2 per cent. For Q1 (2024-25 fiscal), it is projected at 5.2 per cent.
Coming to growth, RBI maintained real GDP growth for 2023-24 at 6.5 per cent with Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent. That said, the only thing about which the central bank showed utmost concern is the rising inflation and its attached potential risk to growth outlook.
The overall inflation outlook, RBI cautioned, saying it is clouded by uncertainties from the fall in kharif sowing for key crops like pulses and oilseeds, low water at key reservoirs, and volatile global food and energy prices.
RBI Governor Shaktikanta Das said the central bank is concerned and it has identified high inflation as a major risk to macroeconomic stability and sustainable growth. Accordingly, the monetary policy remains resolutely focused on aligning inflation to the 4 per cent target on a durable basis.
Also, the governor noted 5 out of the 6 MPC members are for remaining focused on “withdrawal of accommodation” in monetary policy stance so as to ensure the inflation progressively aligns with the target, while supporting growth.
RBI in its past three meetings – April, June, and August — held the repo rate unchanged at 6.5 per cent. The repo rate is the rate of interest at which RBI lends to other banks. Barring the latest third straight pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
Headline inflation in India rose to 7.8 per cent in July due to a surge in prices of food items like wheat, rice and vegetables, including tomatoes, to later fall to 6.8 per cent in August. Inflation data for September is due in next few days.
A big number of analysts and experts and economists reacted on the monetary policy outcome. “The ability of RBI to remain steadfast and focused on pitching key growth deliverables bodes well even as global uncertainties pick pace outside,” said Dinesh Khara, Chairman, SBI.
“RBI has kept the Repo rate and overall stance unchanged as was largely expected, emphasising on withdrawal of accommodation and supporting growth. Inflation needs to be closely monitored, but it seems to have peaked and a correction in prices over the near term looks probable,” said Subhrakant Panda, President, FICCI.
“In line with the Monetary Policy Committee’s observation on recurring food price shocks impacting both the inflation trajectory and its persistence, FICCI reiterates that de-risking food supply chains from weather related disruptions should be a priority. This calls for a comprehensive roadmap and coordinated action at multiple levels.”
Ashwini Kumar, Head- Market Data, ICRA Analytics, the wholly-owned subsidiary of ICRA, said: “The Reserve Bank of India has maintained status quo on policy rates at the just concluded Monetary Policy Committee meeting as inflation persists above the targeted rate, uneven rainfall is likely to affect agri supply ahead of the onset of festive season. Globally, the US Fed persists with its hawkish stance even as oil prices have retreated. The 10-year government bond yield is likely to rise as the central bank has said it will consider Open Market Operations (OMO) sales to manage liquidity in the system. ICRA Analytics foresees the 10Y benchmark yield to trade between 7.25- 7.40 per cent in the near term.”
