This is the first time since the beginning of this year that inflation numbers have remained within Reserve Bank of India’s (RBI) tolerance band of 2-6%. The RBI has been tasked by the government to keep inflation within 2-4% range, with a margin of 2% on each side.
In December last year, retail inflation figures were at 5.59%. Since then, CPI numbers were on an upward trajectory and surged to 8-year high of 7.79% in April.
We can now say that retail inflation numbers are back to a level where it was 2 months before Russia invaded Ukraine in February, which sent global food and commodity prices soaring.
This is the 2nd consecutive month when India witnessed a cool down in inflation figures. In October too, annual retail inflation had eased to a three-month low of 6.77%. This was mainly on account of a slower rise in food prices and a higher base effect, strengthening bets on smaller rate increases by the central bank going ahead.
The data comes days after the RBI slowed the pace of interest rate hikes while vowing to keep a close eye on inflation and act as necessary.
‘Worst of inflation over’
Presenting his bi-monthly monetary policy statement last week, RBI governor Shaktikanta Das had said that worst of this year’s inflationary spike “is behind us” but warned there was no room for complacency.
“The MPC was of the view that further calibrated monetary policy action was warranted to keep inflation expectations anchored, break core inflation persistence and contain second round effects,” Das had said.
RBI deputy governor in-charge of monetary policy Michael Patra also supported Das’s views and said that the worst of inflation is over but moderation of will be very grudging.
“The worst of inflation is over but the moderation of inflation will be very grudging, very uneven. So we must shepherd inflation first firmly into the tolerance band and then to the target,” Patra said.
He also underlined the importance of the smaller rate hike than at previous meetings, but said the central bank was closely watching for second round effects of inflation.
Slower pace of rate hikes
RBI hiked the key repo rate by 35 basis points, the fifth straight increase since May, raising prospects of EMIs for home, auto and other loans rising further.
However, this time the pace of hike was slower than earlier. The previous four increases totaled 190 bps, with the last three hikes being 50 bps each. In all, RBI has raised rates by 225 bps, taking repo rate to 6.25%.
The central bank, whose primary mandate is to ensure price stability, last month wrote a letter to the government, explaining how global factors contributed to its failure to keep inflation below the target zone for three straight quarters. On the same note, it outlined a roadmap to bring price gains within target.
The RBI retained its 6.7% inflation forecast for the current fiscal year ending March but lowered economic growth expectation to 6.8% from the 7% forecast previously.
(With inputs from agencies)
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