The Reserve Bank of India has upwardly revised the country’s retail inflation projections for 2023-24 at 5.4 per cent, against 5.1 per cent it projected in its previous monetary policy meeting in June.

RBI Governor Shaktikanta Das, as part of his remarks after the policy meeting, said assuming a normal monsoon, retail inflation is revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. Retail inflation for Q1 2024-25 is projected at 5.2 per cent.

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“The risks are evenly balanced,” Das said.

The upward revision in the inflation outlook comes after retail inflation in India rose considerably in June to 4.81 per cent, largely due to a sharp spurt in vegetable prices – including tomatoes. Besides vegetables, meat and fish; eggs; pulses and products; spices indices too saw an uptick. Back in May, the retail inflation was at a two-year low of 4.25 per cent. It was at 4.7 per cent in April and 5.7 per cent the previous month.

“The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the nearterm,” said Das.

“Going by the past trends, vegetable prices may see a significant correction after a few months. The prospects of kharif crops have brightened, thanks to improvement in the progress of the monsoon. Uncertainties, however, remain on domestic food price outlook due to sudden weather events and possible El Niño conditions in August and beyond. Global food prices are also exhibiting a hardening bias on renewed geopolitical tensions. Crude oil prices have firmed up in recent weeks and its outlook is clouded by demand-supply uncertainties,” he added.

Against that backdrop, the RBI Governor said it stands in readiness to go beyond “keeping Arjuna’s eye” to deploying policy instruments, if necessary.

He reiterated what he said after the June meeting – “Bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4.0 per cent.”

Under the flexible inflation targeting framework, the RBI is mandated to maintain the retail inflation in the 2-6 per cent range. The RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

Coming back to today’s monetary policy outcome, the RBI rate-setting panel unanimously decided to keep the repo rate unchanged at 6.5 per cent, something most financial market experts had expected.

RBI typically conducts six bi-monthly meetings in a financial year, where it decides interest rates, money supply, inflation outlook, and various macroeconomic indicators. The ongoing three-day and the third meeting of 2023-24 started on Tuesday.

In its previous meeting in early June, the central bank’s monetary policy committee unanimously decided to keep the repo rate unchanged at 6.5 per cent, something most analysts had expected. The RBI in its April meeting too had paused the repo rate.

The repo rate is the rate of interest at which RBI lends to other banks.