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RBI Projects 6.8% Retail Inflation In October-December Quarter

RBI Governor Shaktikanta Das said that second half of 2020-21 is expected to show some positive growth
RBI Governor Shaktikanta Das said that second half of 2020-21 is expected to show some positive growth

The Reserve Bank of India (RBI) on Friday, December 4, said that retail inflation is likely to remain elevated and pegged it at 6.8 per cent for the third quarter of the current fiscal. RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) is of the view that inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables. However, retail inflation is projected to be 5.8 per cent in the fourth quarter of 2020-21. Consumer price index (CPI) inflation rose sharply to 7.3 per cent in September and further to 7.6 per cent in October, RBI Governor Shaktikanta Das said while revealing the bi-monthly monetary policy review.

According to the governor, with some evidence that price pressures are spreading, the outlook for inflation has turned adverse in relation to expectation in the last two months. "While cereal prices may continue to soften with the bumper kharif harvest arrivals and vegetable prices may ease with winter crop, other food prices are likely to persist at elevated levels. Cost push pressures continue to impinge on core inflation which could remain sticky. Taking into consideration all these factors, the CPI inflation is projected at 6.8 per cent for Q3 FY2020-21; 5.8 per cent for Q4 FY2020-21 and 5.2-4.6 per cent in H1 of FY2021-22 with risks broadly balanced," Mr Das said.

The MPC has kept the key policy or the repo rate unchanged at 4 per cent with an accommodative stance to support growth and rein in inflationary pressures. "Our paramount objective is to support growth while ensuring that financial stability is maintained and preserved at all times," added the RBI Governor.

“The December policy was expected to be a non-event in terms of policy actions. The RBI MPC's decision to keep policy rates unchanged was as expected. We maintain our view that the rate cut cycle is over, for now. It is important to note that the RBI estimates growth to be positive in both 3QFY21 and 4QFY21 while inflation remains well above the 4 per cent till 2QFY22. If at all, any further rate cut (25-30 bps) will be contingent on weaker-than-expected growth trajectory (sharp deceleration in growth impulses after the festive season) and/or lower-than-expected inflation trajectory,'' said Suvodeep Rakshit, Vice President & Senior Economist at Kotak Institutional Equities.