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India's Retail Inflation Peaking, RBI Says

Strategic Insights

— 1 min read

Monetary policy actions in India will not be as harsh as elsewhere to contain inflation, said Reserve Bank of India (RBI) deputy governor Michael Patra. This is because the depreciation in the rupee is among the slowest in the world, and the RBI aims to defend it against volatility. The MPC will discuss and draft a report to explain the deviation from the inflation target, weighing in on the situation if the figure is not met for three successive quarters.

Key Takeaways:

  • The RBI expects India's retail inflation to ease to 7.04% in May from an eight-year high of 7.79% in April.
  • The Monetary Policy Committee (MPC) will discuss and draft a report to explain the deviation from the inflation target, weighing in on the situation if the figure is not met for three successive quarters.
  • The RBI raised the policy rate by 90 basis points in two steps, raising its inflation forecast for FY23 by a percentage point to 6.7%.
  • Elevated fuel, food, and commodity prices, stemming largely from the Russia-Ukraine conflict, are keeping prices up.
  • Research by the RBI and others clearly demonstrates that growth is impaired when inflation crosses 6% in India.
  • The RBI expects India's economy to grow 7.2% in FY23, down from 8.7% in FY22.

Statistics:

  • Retail inflation averaged 6.3% in the fourth quarter of FY22.
  • Retail inflation is projected at 7.5% in the first quarter of FY23 and 7.4% in the second quarter.
  • India's economy is expected to grow 7.2% in FY23.
  • The RBI raised the policy rate by 90 basis points in two steps.

Sources:

  • Times of India article dated "Friday"
  • RBI deputy governor Michael Patra's speech at the PHD Chamber of Commerce
  • RBI's Monetary Policy Committee (MPC) meeting schedule
  • RBI's inflation forecast for FY23
  • RBI's growth forecast for India's economy in FY23
  • RBI's research on the impact of inflation on growth in India

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