The Reserve Bank of India (RBI) retained its inflation projection at 5.3 per cent for the current financial year.
The Reserve Bank of India on Thursday said inflation based on the consumer price index (CPI) is expected to come well below its upper tolerance level, at 4.5 per cent, in the next fiscal year beginning April 2022, helped by better fresh crop arrivals, supply-side interventions, as well as prospects of a good monsoon.
However, the hardening of crude oil prices presents a major upside risk to the inflation outlook.
The Reserve Bank of India (RBI) retained its inflation projection at 5.3 per cent for the current financial year.
Unveiling the last monetary policy for the current fiscal year, RBI Governor Shaktikanta Das said, core inflation remains elevated at tolerance-testing levels. Although the continuing pass-through of tax cuts relating to petrol and diesel last November, would help to moderate the input cost pressures to some extent, he said.
RBI keeps a close watch on the CPI inflation to decide on its bi-monthly monetary policy.
Retail inflation rose to a five-month high of 5.59 per cent in December, from 4.91 per cent in November, mainly due to an uptick in food prices.
MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.
The Reserve Bank has kept its key repo rate -- at which it lends short-term money to banks -- unchanged for the 10th time in a row at 4 per cent, to support growth as well as manage the inflationary pressures.
"The transmission of input cost pressures to selling prices remains muted in view of the continuing slack in demand. Further, as risks from Omicron (virus) wanes and supply-chain pressures moderate, there could be some softening of core inflation. On balance, the inflation projection for 2021-22 is retained at 5.3 per cent, with Q4, that is the current quarter at 5.7 per cent on account of the unfavourable base effect that eased subsequently," Das said.
Das further noted that the CPI reading for January 2022, is expected to move closer to the upper tolerance band, largely due to adverse base effects. "Taking all these factors into consideration along with the assumption of a normal monsoon, CPI inflation for 2022-23, is projected at 4.5 per cent," Das said.