Monetary policy: RBI revises inflation projection for FY23 to 6.7 % from 5.7% earlier

The RBI has revised India's inflation projection to 6.7 per cent from the earlier estimate of 5.7 per cent as the protracted nature of the Russia-Ukraine war puts pressure on commodity prices globally.

The RBI underlined that CPI inflation increased from 7.0 percent in March 2022 to 7.8 percent in April 2022, reflecting a wide increase in all of its major components.

Food inflationary pressures have increased, with cereals, milk, fruits, vegetables, spices, and prepared meals leading the way. The surge in LPG and kerosene costs drove up fuel inflation.


These factors, along with an average crude oil price (Indian basket) of US$105 per barrel and a normal monsoon in 2022, lead to inflation estimates of 6.7% in 2022-23, with Q1 at 7.5%; Q2 at 7.4%; Q3 at 6.2%; and Q4 at 5.8%.

Core inflation (CPI without food and fuel) increased across almost all components, with transportation and communication leading the way.

Inflation risks identified in the MPC's April and May resolutions have materialised. Inflation is expected to remain over the maximum tolerance limit of 6% in the first three quarters of 2022-23, according to forecasts.

In a recent interview, the governor had said that the RBI will decide on further rate action depending on the revised inflation projections for the current fiscal.

Higher inflation has been a concern for central banks all over including India's as the uncertain nature of the Russia-Ukraine war has compounded supply side disruptions.

Higher food and fuel prices pushed India's retail inflation to 7.8 per cent in April.

Wholesale prices remaining in double digits continuously for 13 months is adding more pressure to RBI's inflation fight as fears of it spilling over to retail prices have increased.

Consumer food prices rose 8.38% in April from 7.68% a month earlier, with edible oils and vegetables growing the most rapidly.

The government recently cut excise duty on fuel to lower gasoline and diesel prices. It also slashed import duty on key raw materials to cool down prices.

The government is eager to assist with inflation management in order to keep monetary tightening to a minimum, as a sudden increase in interest rates might derail the economic recovery.

In April, wholesale price-based inflation reached a new high of 15.08%, owing to increased prices in a variety of sectors, including food and commodities. Inflation based on the WPI was 14.55% in March and 10.74% in April of the previous year.