The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has revised its projections for retail price inflation and economic growth for the fiscal year 2023-24. In a resolution, the MPC stated that it expects the rate of price rise to cool by 40 basis points in the fourth quarter, compared to its earlier forecast.
Economic growth is projected to be slightly higher at 6.5 percent than expected earlier, with the third and fourth quarters likely to see slightly higher growth in the gross domestic product (GDP) than previously anticipated.
The Monetary Policy Committee MPC’s projections for the consumer price index (CPI)-based inflation rate for FY24 have been revised down to 5.2 percent from 5.3 percent earlier. However, the first quarter is likely to see slightly higher inflation at 5.1 percent, up from 5 percent expected earlier. Meanwhile, the fourth quarter may see the rate of price rise at 5.2 percent against 5.6 percent projected in the February monetary policy review. The MPC attributed high milk prices to input costs and seasonal factors and noted that core inflation, related to non-fuel and non-food items, would also remain elevated due to lagged pass-through of input costs.
The committee highlighted that while the expectation of a record rabi food grains production bodes well for food prices, the impact of recent unseasonal rains and hailstorms needs to be watched. It also warned of risks to its outlook for economic growth, including protracted geopolitical tensions, tight global financial conditions, and global financial market volatility. The MPC said that global financial market volatility has surged, with potential upsides for imported inflation risks. The outlook for crude oil prices is also subject to high uncertainty.
The MPC’s economic growth projection of 6.5 percent in FY24 aligns with the forecast made by the government’s Economic Survey under the baseline scenario. However, the committee’s slight upward revision about growth came even as both the World Bank and Asian Development Bank (ADB) scaled down their projections for India for FY24. The World Bank revised its projection down to 6.3 percent from 6.6 percent earlier, while ADB lowered it to 6.4 percent from 7.2 percent earlier.
India’s economy is officially projected to grow 7 percent in 2022-23 against 9.1 percent in the previous year, making it a three-year low. The committee noted that a good rabi crop should strengthen rural demand, while sustained buoyancy in contact-intensive services should support urban demand. However, it warned that the external demand drag could accentuate, given slowing global trade and output.
The MPC based its inflation projections on a normal monsoon and an annual average price of the Indian basket of crude oil at $85 per barrel for FY24, with the price averaging $84.89 a barrel until April 5 of the year. The easing cost conditions are leading to some moderation in the pace of output price increases in manufacturing and services.
In conclusion, the MPC’s projections reflect the continued uncertainty and risks to the Indian economy’s recovery, particularly from global factors such as financial market volatility and geopolitical tensions. The committee’s emphasis on the impact of recent unseasonal rains and hailstorms on food prices, as well as the potential for imported inflation risks, highlights the need for vigilance in managing India’s macroeconomic challenges.
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