FY24 inflation forecast conservative, can benefit from low oil prices: Das

On February 8, the RBI released its latest inflation forecast as part of the Monetary Policy Committee’s (MPC) decision to increase the repo rate by 25 basis points to 6.5 percent.

Reserve Bank of India (RBI) Governor Shaktikanta Das has admitted that the central bank’s inflation forecast for the next financial year is conservative and low crude oil prices could work in India’s favour.

Speaking on February 11 in the Capital at the conclusion of a meeting of the RBI’s central board of directors, Das said the inflation forecast had taken all factors into consideration.

“The forward markets are giving a much more benign picture with regards to the oil prices but we have been very conservative in our assessment,” Das said.

“So if the oil prices go down significantly and if there is an advantage of other commodity prices, it will work to our favour in terms of leading to lower inflation.”

On February 8, the RBI released its latest inflation forecast as part of the Monetary Policy Committee’s (MPC) decision to increase the repo rate by 25 basis points to 6.5 percent.

The central bank sees Consumer Price Index (CPI) inflation averaging 5.3 percent in 2023-24, down from 6.5 percent in the current financial year.

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The RBI’s inflation forecast assumes $95 a barrel the price of India’s crude oil basket. This is nearly 20 percent higher than the current price. As such, economists are of the opinion that by next year, inflation will remain 30-50 basis points lower than RBI’s forecast. One basis point is one-hundredth of a percentage point.

However, Das also said on February 11 that global demand for oil could go up, given that the growth outlook was not as poor as a few months ago.

“The talk of a deep recession in many countries, including advanced countries, is behind us. Now, the talk around the world is either a softer recession or just a global slowdown. So, therefore, the risks are evenly balanced and we have to see how it plays out,” Das said.

Commenting on the rising real interest rates, the RBI governor said the continuation of negative interest rates for a prolonged period of time “can create instability in the financial system”.

In a post-policy press conference on February 8, RBI deputy governor Michael Patra said the real policy rate was now about 0.9 percent.

While responding to a question on the impact of rising interest rates on ’ home loan installments, Das said on February 11 that gain to depositors should not be forgotten.

“But the larger point is that we are mandated under the law to maintain price stability, which is an important component of financial stability. And as a part of price stability requirements, the Monetary Policy Committee is taking various decisions and our interest rate increase is part of that process,” Das said.

“The rest of it, deposit rates, lending rates…as you know they have been deregulated, and it is left to the banks to decide their rates. Market competition will decide what should be the rates both on the deposit side as well as the lending side.”