Consumer price index based inflation which stayed elevated in the last few months is expected to soften during the course of the financial year, the Reserve Bank of India said in its monetary policy report.
CPI inflation is tentatively projected to ease from 4.8% in Q1:2020-21 to 4.4% in Q2, 2.7% in Q3 and 2.4% in Q4, with the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently-anticipated and ease core inflation further, while supply bottlenecks could exacerbate pressures more than expected,” RBI said.
The MPR which was released on Tuesday is part of the out-of-turn review of monetary policy held in March end due to uncertainties arising from the economic lockdown. RBI has reduced the repo rate and cash reserve ratio by 75 bps in the monetary policy review. The central bank refrained from giving any projection on growth and inflation while announcing the review.
“Given the lockdown, the compilation of the CPI for March and the following few months by the National Statistical Office could also become challenging. For 2021-22, assuming a normal monsoon and no major exogenous or policy shocks, structural model estimates indicate that inflation could move in a range of 3.6-3.8%,” RBI said.
While RBI indicated its forecast on inflation but again refrained from making any prediction on growth.
“The highly fluid circumstances in which incoming data produce shifts in the outlook for growth on a daily basis, forecasts for real GDP growth in India are not provided here, awaiting a clear fix on the intensity, spread and duration of COVID-19,” RBI said while observing that the economy was looking up before the pandemic broke.