Inflation numbers have now been above the upper limit of RBI’s 2 per cent – 6 per cent tolerance band for 4 straight months.
The Reserve Bank of India (RBI) mainly factors in retail inflation while arriving at its bi-monthly policy.
Reserve Bank’s monetary policy committee (MPC) has been tasked by the government to tame retail inflation based on consumer price index (CPI) at 4 per cent (+,-2 per cent).
In March, inflation had shot up to 6.95 per cent, a 17-month high, on the back of rising food prices.
What led to this
Food inflation, which accounts for nearly half the consumer price index (CPI) basket, reached a multi-month high in March.
The ongoing Russia-Ukraine war, which has entered the 77th day, has disrupted global supply chains and further pushed commodity prices, especially for fuel and foodgrains, across the world.
All the major central banks are now forced to act, the sources said, adding the focus the world over for the next 6-8 months would be to bring down inflation by killing whatever demand there is.
What RBI has done so far
In an effort to tame the inflation, the Reserve Bank of India (RBI) raised the repo rate by 40 basis points (bps) to 4.40 per cent following a emergency meeting earlier this month. This was the first rate move in 2 years and its first hike in nearly 4 years.
In April MPC, RBI raised its inflation forecast for the current fiscal year to 5.7 per cent, 120 bps above its forecast in February, while cutting its economic growth forecast to 7.2 per cent for 2022-23 from 7.8 per cent.
The RBI will “certainly” raise the forecast again in June, as it did not want to do it in the off-cycle emergency meeting in May, said the source, who did not want to be identified as the discussions are private.
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