RBI revises projected CPI inflation to 5.2% in Q1 FY22

RBI maintained GDP growth rate forecast for the nation at 10.5% despite a second wave of the Covid-19 pandemic

The Monetary Policy Committee (MPC) of the Reserve Bank of India on Wednesday projected the consumer price inflation (CPI) at 5% in the fourth quarter of FY21.

Announcing the MPC decisions, the RBI Governor Shaktikanta Das said the CPI inflation will be 5.2% for Q1 and Q2 of FY22, 4.4% for Q3 and 5.1% in Q4, with risks broadly balanced. "The evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The bumper foodgrains production in 2020-21 should sustain softening of cereal prices going forward," he said.

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While the prices of pulses, particularly tur and urad, remain elevated, the incoming rabi harvest arrivals in the markets and the overall increase in domestic production in 2020-21 should augment supply which, along with imports, should enable some softening of these prices going forward, he said.

Pump prices of petroleum products have remained high. Reduction of excise duties and cesses and state-level taxes could provide some relief to consumers on top of the recent easing of international crude prices. This could slow down the propagation of second-round effects. The impact of high international commodity prices and increased logistics costs are being felt across manufacturing and services, the governor said.

GDP growth outlook

The MPC also retained the real GDP growth for 2021-22 at 10.5% consisting of 26.2% in Q1, 8.3% in Q2, 5.4% in Q3 and 6.2% in Q4.

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Rural demand remains buoyant and record agriculture production for 2020-21 bodes well for its resilience. Urban demand has been gaining strength on the back of normalisation of economic activity and should get a fillip with the ongoing vaccination drive, Das said.

The fiscal stimulus from the increased allocation for capital expenditure under the Union Budget 2021-22, expanded production-linked incentives (PLI) scheme and rising capacity utilisation (from 63.3% in Q2 to 66.6% in Q3, 2020-21) should provide strong support to investment demand and exports. Firms engaged in manufacturing, services and infrastructure polled by the Reserve Bank in March 2021 were optimistic about a pick-up in demand and expansion in business activity into 2021-22.

Consumer confidence, on the other hand, has dipped with the recent surge in Covid-19 infections in some states imparting uncertainty to the outlook, the RBI said in its monetary policy statement.