RBI retains its consumer price inflation forecast at 6.7% for FY23

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The Reserve Bank of India (RBI) on December 7 retained  its retail inflation forecast for the current financial year at 6.7 percent.

“The battle against inflation is not over,” Das said while announcing a 35-basis-point increase in the repo rate to 6.25 percent.

Also read: RBI Monetary Policy LIVE: RBI MPC hikes repo rate by 35 bps, RBI's FY23 GDP projection at 6.8%

The central bank forecasts the CPI inflation to be around 6.6 percent in October-December 2022, 5.9 percent in January-March 2023, 5.0 percent in April-June 2023, and 5.4 percent in July-September 2023.

"We will keep an Arjuna’s eye on inflation and we will be ready to act. Our actions will be nimble," Das said.

This is the first time the RBI has detailed its forecast after Consumer Price Index (CPI) inflation data for September, released on October 12, showed it had failed to meet its mandate.

The RBI is deemed to have failed if average CPI inflation stays outside the 2-6 percent tolerance range for three consecutive quarters. Following the failure, it submitted a report to the government explaining why it failed, the remedial action it plans to take, and the time period within which inflation will return to target.

With retail prices rising 6.77 percent in October, CPI inflation has now spent 10 straight months above the 6 percent upper bound of the mandated range. Inflation has also been above the medium-term target of 4 percent for more than three years now.

The RBI said risks to inflation and core inflation emerge as big worries for the Monetary Policy Committee now. “On balance, the MPC was of the view that further calibrated action was warranted to keep inflation expectation anchored, break core inflation persistence, and contain second round effects,” Das said.

In its earlier policy decision on September 30, the central bank had forecast that inflation would average 6.5 percent in October-December 2022, 5.8 percent in January-March 2023, and 5 percent in April-June 2023.