RBI policy: FY22 CPI inflation target lowered to 5.3% from 5.7%

Reserve Bank of India (RBI) Governor Shaktikanta Das

Reserve Bank of India Governor Shaktikanta Das on October 8 said the central bank has lowered its FY22 CPI Inflation target to 5.3 percent from the earlier 5.7 percent.

It also saw July-September CPI inflation at 5.1 percent compared to the 5.9 earlier. The October-December CPI Inflation is estimated at 4.5 percent compared to the 5.3 percent earlier.

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"High frequency indicators suggest economic activity has gained momentum. Core inflation remains sticky. July-September Consumer price Index (CPI) inflation was lower than anticipated. India in a much better place today than at the time of the last MPC meeting," Governor Das said.

"Growth impulses are strengthening, inflation trajectory more favourable than expected. Pent-up demand, festival season should boost urban demand. Recovery in demand gathered pace in Aug-Sep. Pick-up in import of cap goods point to some recovery in activity," he noted.

The RBI’s Monetary Policy Committee (MPC), on October 8, kept key policy rates unchanged indicating that a status-quo is desirable at this juncture when growth-inflation scenario remains uncertain.

Repo rate, at which it lends short-term funds to banks, thus remains unchanged at 4 percent; reverse repo rate stands at 3.35 percent; and retained the monetary stance as ‘accommodative’. This is the eighth consecutive time the MPC maintaining a status quo in rates.

The MPC has been a cautious mode since the beginning of the COVID-19 pandemic in 2020 and has largely remained on status-quo throughout, citing uncertainty in macro-economic trends.

The central bank had begun its latest review of the monetary policy on October 6. The meet came amid easing inflationary pressures and a liquidity flush in the system.

The committee was largely expected to keep rates unchanged and maintain its ‘accommodative’ stance as it awaits cues on the inflation front. They however expect shift in the forward guidance favouring gradual normalisation.

The Governor also announced that Marginal Standing Facility (MSF) has been unchanged at 4.25 percent. He added that the July-September CPI inflation was "lower than anticipated".

The RBI has also maintained FY22 GDP growth target at 9.5 percent. For Q1FY23, the central bank has GDP growth target at 17.1 percent. On the inflation front, the central bank has lowered its FY22 CPI Inflation target to 5.3 percent from the earlier 5.7 percent.

Notably, Moody's hiked India's sovereign credit rating outlook to stable from negative on October 5, citing an improvement in the financial sector and faster-than expected economic recovery across sectors. "The decision to change the outlook to stable reflects Moody's view that the downside risks from negative feedback between the real economy and financial system are receding," it said.