The Reserve Bank of India’s Monetary Policy Committee on Friday raised its estimate for inflation in FY23 to 5.7%, from the 4.5% forecast in February before Russia invaded Ukraine, and stressed that it would now turn its focus to the “withdrawal of accommodation to ensure that inflation remains within the target going forward”.
“In the sequence of priority we have now put inflation before growth,” RBI governor Shaktikanta Das said at a press conference after announcing the MPC’s decision to hold interest rates at its first policy review of the new fiscal year. “For the last three years growth was ahead of inflation in sequence. This time we have reversed it because we thought the time is appropriate,” he added.
The RBI has also started withdrawing some of the accommodation it had provided in the last two years, though gradually.
“The stance continues to be accommodative but we are now focussing on withdrawal of accommodation. So, gradually we are moving away from an ‘accommodative’ stance which has been there for more than two years,” Mr. Das stressed.
Elaborating on the change in tack, RBI Deputy Governor Michael Debabrata Patra said, “We have taken the policy repo rate to an all-time low which is 4%. If you adjust it with the targeted inflation then the real rate is zero. That was ultra accommodation. The situation is changing and now we want to withdraw the ultra accommodation but there is scope to remain accommodative.”
Mr. Das said the MPC had decided to revise the inflation projections for FY23 upwards with the estimate for Q1 at 6.3%; Q2 at 5.8%; Q3 at 5.4%; and Q4 at 5.1% due to “war-induced factors”.
He pointed to the sharp increase in crude oil, edible oil and wheat prices, and the cost of feed — which has pushed prices of poultry, egg and dairy products — as reason for the higher estimates.
Earlier, the MPC voted unanimously to keep the policy repo rate unchanged at 4%.
Mr. Das said escalating geopolitical tensions had cast a shadow on India’s economic outlook. As a result, real GDP growth for FY23 has been projected at 7.2%, compared with 7.8% estimated earlier.
Asked about the likely impact of any economic fallout due to India’s ongoing trade with Russia, which is facing sanctions from western nations, Mr. Das said, “The government is seized of the issue... as far as RBI is concerned, we will not do anything that goes against the sanctions.”