The Reserve Bank of India (RBI) on June 8 made a slight downward revision to its inflation forecast for 2023-24, lowering it by 10 basis points to 5.1 percent.
In his address on the Monetary Policy Committee's (MPC) latest decision to leave the key policy repo rate unchanged at 6.5 percent for the second time in a row, RBI Governor Shaktikanta Das said the risks to the inflation forecasts were "evenly balanced".
"The MPC will continue to remain vigilant on the evolving inflation and growth outlook. It will take further monetary actions promptly and appropriately as required to keep inflation expectations firmly anchored and bring down inflation to the target," Das said.
The quarterly break-up of the inflation forecast stands as follows:
>> April-June 2023 Consumer Price Index (CPI) inflation forecast cut to 4.6 percent from 5.1 percent
>> July-September 2023 CPI inflation forecast cut to 5.2 percent from 5.4 percent
>> October-December 2023 CPI inflation forecast retained at 5.4 percent
>> January-March 2024 CPI inflation forecast retained at 5.2 percent
The big cut in the forecast for the first quarter of 2023-24 comes after CPI inflation crashed to an 18-month low of 4.70 percent in April. Economists expect it to have fallen further in May, data for which will be released on June 12.
In its statement, the MPC said that going forward, the CPI inflation trajectory will likely be driven by food prices.
"Wheat prices could see some correction on robust mandi arrivals and procurement. Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs," the committee said.
"The forecast of a normal south-west monsoon by the India Meteorological Department augurs well for kharif crops; however, the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production," it added.
While CPI inflation recently returned to the RBI's tolerance band of 2-6 percent, Das said that is not enough and the MPC would look to bring it down to the medium-term target of 4 percent.
"Let me re-emphasise that headline inflation still remains above the target and being within the tolerance band is not enough. Our goal is to achieve the target of 4.0 percent, going forward," Das said in his address.
In this regard, the central bank chief noted that a "durable disinflation" in core inflation would be essential.
Core inflation, which mesures the change in prices of items in the CPI basket excluding food and fuel, fell to 5.2 percent in April.
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