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RBI projects inflation in 5-5.2% range in H1 FY22

In March this year, Centre will review inflation target for next five years: RBI Guv

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Mumbai: The Reserve Bank on Friday projected retail inflation to be in 5-5.2 per cent range during the first half of the next fiscal year, expecting further softening of vegetables prices in near term. Also, it has lowered the retail inflation forecast for the current January-March quarter of 2020-21 fiscal at 5.2 per cent. The Reserve Bank (RBI) has kept the key policy rate unchanged at 4 per cent, with an accommodative stance, so as to ensure that inflation remains well within the target, Governor Shaktikanta Das said while announcing the last monetary policy of 2020-21.

The Governor said the outlook on growth has improved significantly and inflation has returned within the tolerance band (of +/-4 per cent). Having breached the upper tolerance threshold (over 6 per cent) continuously since June last year, CPI inflation has come below 6 per cent in December for the first time in the post-lockdown period supported by favourable base effects and sharp fall in key vegetable prices, Das said. Vegetables, he said, accounted for around 90 per cent of the decline in headline inflation during November and December.

Acknowledging that price pressures may continue to persist in certain key food items, the RBI expects vegetable prices to remain soft in the near term due to higher fresh arrivals, active supply side interventions as well as concerted policy actions by both the central and state governments among others. Mentioning that petroleum prices have reached historic highs due to surge in international crude oil rates and high indirect taxes, both by the Centre and States, as well as sharp increase in industrial raw material resulting in broad-based increase in prices of services and manufacturing in recent months, Das said it was critical to ensure that the ongoing cost build-up does not escalate further.

"Taking into consideration all these factors, the projection for CPI inflation has been revised to 5.2 per cent for Q4:2020-21, 5.2 per cent to 5.0 per cent in H1:2021-22 and 4.3 per cent for Q3:2021-22, with risks broadly balanced," Das said.

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