RBI raises retail inflation target for FY23 to 5.7% on rising global prices

The apex bank kept the benchmark interest rate — repo, at which it lends short-term money to banks — unchanged at 4 per cent.
RBI Governor Shaktikanta Das
RBI Governor Shaktikanta Das
Written by:

The Reserve Bank of India on Friday raised the retail inflation target for the current financial year to 5.7 per cent on the back of rising global prices amidst the ongoing geo-political tensions, even as it expected the prices of cereals and pulses to soften on prospects of good winter crop harvest.

"Global food prices along with metal prices have hardened significantly. Economy is grappling with a sharp rise in inflation... Inflation is now projected at 5.7 per cent in 2022-23 with Q1 at 6.3 per cent; Q2 at 5 per cent; Q3 at 5.4 per cent and Q4 at 5.1 per cent," RBI Governor Shaktikanta Das said while unveiling the first monetary policy review for the current fiscal year.

In its earlier policy review in February, the RBI had projected retail inflation to be at 4.5 per cent in 2022-23. The apex bank kept the benchmark interest rate -- repo, at which it lends short-term money to banks -- unchanged at 4 per cent.

Retail inflation is hovering above the RBI's upper tolerance level for the past couple of months. It was 6.07 per cent in February and 6.01 per cent in January, mainly due to an uptick in food prices.

This is the 11th time in a row that the Monetary Policy Committee (MPC) headed by Das has maintained the status quo. The MPC, based on its assessment of the macroeconomic situation and outlook, voted unanimously to keep the policy repurchase (repo) rate unchanged at 4 per cent, Das said while announcing the bi-monthly monetary policy review.

The MPC also decided unanimously to remain accommodative, while focussing on withdrawal of its current stance to ensure that inflation remains within the target band going forward, while supporting growth.

"It may, however, be noted that given the economic volatility on global crude oil prices... the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk," Das said.

RBI, however, hoped that the likely good harvest from the rabi (winter) crop will keep prices of cereals and pulses under check.

The Reserve Bank has been mandated to keep retail inflation at 4 per cent with a bias of 2 per cent on either side.

The RBI slashed the growth projection for the current fiscal to 7.2 per cent from 7.8 per cent earlier. 

The bi-monthly policy comes against the backdrop of the Budget where a nominal gross GDP of 11.1 per cent has been estimated for 2022-23.

The government expects this growth to be fuelled by a massive capital spending programme outlined in the Budget with a view to crowd-in private investment by reinvigorating economic activities and creating demand.

Finance Minister Nirmala Sitharaman raised capital expenditure (capex) by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy. The capex in the current financial year is pegged at Rs 5.5 lakh crore.

The spending on building multi-modal logistics parks, metro systems, highways, and trains is expected to create demand for the private sector as all the projects are to be implemented through contractors.

Related Stories

No stories found.
The News Minute