Retail price inflation would hit a five-month high of 7.59 per cent in September, if projections given by the Reserve Bank of India’s monetary policy committee (MPC) come out true.
The projections may also mean that the central bank will have to write to the government to explain the reasons for its failure to contain the inflation rate up to six per cent for three consecutive quarters.
The consumer price index (CPI)-based inflation rate stood at 6.71 per cent in July and 7 per cent in August. The MPC retained the projection for inflation at 7.1 per cent for the second quarter of the current financial year.
The inflation rate stood at 6.34 per cent in the fourth quarter of 2021-22 and 7.28 per cent in the first quarter of 2022-23.
The inflation rate is not expected to come down to six per cent even in the third quarter of the current financial year. MPC upped its inflation projection slightly by 10 basis points to 6.5 per cent. from earlier 6.4 per cent.
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However, it retained the projection for inflation at 6.7 per cent for the entire 2022-23.
The MPC assumed crude oil price to cost $100 a barrel on an average. Prices of Indian basket of crude declined to $90.78 per barrel in September (till 29th) from $97.40 in August and $ 105.59 in July.
According to the monetary policy framework agreement between the RBI and the government, the former will be seen as failing in its inflation target if the rate of price rise is over six per cent or less than two per cent for three consecutive quarters. If this happens, RBI will set out in its report to the Centre the reasons for its failure to keep inflation within 2-6 per cent, the remedial actions it proposes to take and an estimate of the time within which the inflation target would be achieved pursuant to the timely implementation of the proposed remedial actions.
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With the first quarter delivering less economic growth than projected MPC, the panel cut its gross domestic product (GDP) growth by 20 basis points to 7 per cent for the current financial year.
This was despite the fact that the MPC raised projections of growth for all the remaining quarters — Q2, Q3 and Q4 — in its September monetary review than those given in August.
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The GDP grew 13.5 per cent in the first quarter of the current financial year against the MPC’s projection of 16.2 per cent.
MPC now projected Q3 GDP growth rate at 6.3 per cent against 6.2 per cent earlier, Q3 at 4.6 per cent compared to 4.1 per cent and Q4 at 4.6 per cent from 4 per cent.
The panel now pegged Q1 FY24 GDP growth rate at 7.2 per cent, sharply higher than the 6.7 per cent forecast in its earlier review.
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The MPC believes that while there is growth momentum due to better farm production, government policies to boost capex, improvement in business and consumer sentiment, external risks have enhanced due to protracted geo-political tensions, rise in global financial market volatility and tightening of global financial conditions.
“Firms polled in the Reserve Bank’s industrial outlook survey expect sequential expansion in production volumes and new orders in Q2, FY’23, which is likely to sustain through Q4,” MPC said in its resolution.