Although consumer prices have risen beyond the Reserve Bank of India's inflation goal for the second month in a row, many economists believe the central bank will maintain its accommodative approach to help the economy recover, The Economic Times reported.
Since May 2020, the Reserve Bank has kept the policy rate at 4% and maintained its accommodative posture to ensure ample liquidity to promote growth and long-term economic recovery.
While retail inflation as per Consumer Price Index (CPI) breached the RBI’s target band of 2-6% in January and February at 6.01% and 6.07%, respectively, they are not far from the central bank’s revised projections.
The RBI in its February statement projected inflation of 5.7% for the current quarter and 5.3% for 2021-22. In the June policy statement, it had projected 5.1% retail inflation for 2021-22 and 5.3% for the fourth quarter.
Even as the Russian invasion of Ukraine and subsequent sanctions against Russia have a direct impact on the global energy market, a fall in global crude prices (Brent) by over 20% in the last one week from a peak of $127 a barrel on March 7 to about $100 a barrel on Tuesday is seen as a comforting factor for Indian monetary policymakers. Prices of iron ore and aluminium that India imports fell by 3-6% during the week.
RBI deputy governor Michael Patra had last week hinted at the continuation of pro-growth policy.
"Even though the fiscal reduction is begun, assessments of the fiscal impulse imply that there is still some stimulus in the economy that will endure through 2022-23," Patra said in a speech. "While the geopolitical fallout is being analysed and will be integrated into our predictions, it is reasonable to treat it as a supply shock at this stage in monetary policy formulation."
Experts said the global surge in food prices may have limited impact on inflation back home. “The surge in food prices globally will likely have a very limited impact on India given its closed food markets and ability to use price controls,” said Rahul Bajoria, chief India economist at Barclays Capital, the report quoted as saying.