MPC meet outcome: RBI Governor revises inflation outlook upwards

Given the ongoing geopolitical developments, primarily owing to Russia’s invasion of Ukraine, the RBI Governor on Friday revised the inflation outlook upwards.

Governor Das announced that the inflation for the current fiscal is now projected at 5.7%, up from 4.5% forecast in the February meeting. Q1FY23 inflation is now seen at 6.3%, Q2 at 5%, Q3 at 5.4% and Q4 at 5.1%.

Retail inflation has remained above the central bank’s 6% upper tolerance band for the last two months. "Sharp pump prices may push inflation; edible oil prices to remain at an elevated level in the near future," Das said.

Global research firm HSBC in a note authored by Pranjul Bhandari had said that greater-than-expected inflation would be worrying when led by a further widening of the wedge between small and large firms, strong pent-up services demand, oil prices settling well above US$100 per barrel, and a full pass-through to the private sector & higher farm input costs, wheat and edible oil prices stoking food inflation.

Before the pick-up of the Russia-Ukraine war, the RBI in its February meeting had forecast a 4.5% inflation for the year.

Oil prices
The rising oil prices have been a point of concern for India, which imports around 80% of it, as it stands to affect the patchy growth India has seen following the Covid-19 pandemic.

Analysts noted that if oil averages at around US$100 a barrel, inflation will likely average 5.6% in FY23, with risks on the upside.

Brent briefly dropped below $100 a barrel for the first time since March 17. The reasons for this include a hawkish commentary by the US Federal Reserve, and the releasing of strategic stockpiles by the US and its allies in the face of intense volatility in the oil market.