Inflation to hover around 6.7% for 2022/23, well above RBI’s target band

RBI Monetary Policy Meet: Monetary Policy Committee hiked the policy repo rate by 50 basis points – a second hike in two months after May’s off-cycle meeting increased the rate to 4.4 per cent.

Retail inflation is likely to hover around 6.7 per cent for the current financial year, i.e., for 2022/23, Reserve Bank of India governor Shaktikanta Das said Wednesday after a scheduled meeting of the Monetary Policy Committee (MPC), raising the forecast from the 5.7 per cent seen earlier.”With the assumption of a normal monsoon, in 2022 and average crude oil price in the Indian basket of 105 dollars per barrel, inflation is now projected at 6.7 per cent in 2022-23,” the RBI governor said, noting the impact of war in Ukraine remains a concern and that the economy faces new challenges daily that accentuates supply chain woes leading to globalisation of inflation.Inflation has been above the RBI’s 2-6 per cent target band since the beginning of this year.India bounced back strongly from the coronavirus pandemic with one of the world’s fastest growth rates, but is now grappling with rising costs as commodity prices skyrocket worldwide.CPI (or consumer price index)-based inflation surged to an eight-year high of 7.79 per cent in April.It has been above 6 per cent since January 2022.The MPC has hiked the policy repo rate by 50 basis points – a second hike in two months after May’s off-cycle meeting increased the rate from 4 per cent to 4.4 per cent to contain rising inflation; this was the first hike since August 2018.The new repo rate is now 4.9 per cent.READ: Repo rate hiked again; RBI retains GDP growth forecast at 7.2%”Consequently, standing deposit facility (SDF) rate stands adjusted to 4.65 per cent and marginal standing facility (MSF) rate and bank rate – to 5.15 per cent,” governor Das added.The key policy rate hike was widely expected. A total of 17 of 41 economists polled by Bloomberg said they expected a 50 basis point-hike while another 11 said they expected a 40-point hike.One basis point is one-hundredth of a percentage point, or 0.01 per cent.

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