RBI Monetary Policy: FY24 Inflation Forecast Raised To 5.4 Per Cent On Higher Vegetable Prices

Retail inflation in India rose to a three-month high of 4.81 per cent in June from 4.25 per cent in May

Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday during his address on the Monetary Policy Committee's (MPC) said that the rate setting panel has made an upward revision to its inflation forecast for 2023-24, raising it by 30 basis points to 5.4 per cent. The governor announced that the MPC has decided to leave the key policy repo rate unchanged at 6.5 per cent for the third time in a row. The risks to the inflation forecasts were "evenly balanced", he noted.

Driving the full-year inflation forecast hike was that for the second quarter, which is now seen at 6.2 per cent, a full hundred basis points higher than previously expected because of a sharp hike in vegetable prices.

Das in his address said, "The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the near-term.”

The governor mentioned that the quarterly break-up of the inflation forecast. For July-September 2023 Consumer Price Index (CPI) inflation forecast raised to 6.2 per cent from 5.2 per cent, October-December 2023 CPI inflation forecast raised to 5.7 per cent from 5.4 per cent, January-March 2024 CPI inflation forecast retained at 5.2 per cent, while for April-June 2024 CPI inflation forecast pegged at 5.2 per cent.

According to a data from the Ministry of Statistics and Programme Implementation in July, retail inflation in India rose to a three-month high of 4.81 per cent in June from 4.25 per cent in May. The previous high CPI was in March at 5.66 per cent. The headline inflation rate snapped its four-month falling streak and was pushed up by a rise in vegetable prices and the fading away of the favourable base effect.

A Reuters’ economists’ poll suggested India’s retail inflation likely accelerated to 6.40 per cent in July on surging food prices, breaching the upper end of the RBI’s 2-6 per cent tolerance limit for the first time in five months.