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RBI revises inflation projection upwards in view of rising food prices

Following the slide in economic growth to 4.5 per cent the last quarter — the worst numbers in more than six and half years — the RBI was expected to further cut policy rates, but ended up holding the repo rate at 5.15 per cent.

ET Online|
Dec 05, 2019, 12.32 PM IST
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In its monetary policy released today, the Reserve Bank of India revised CPI inflation figures for December 2019 upwards to 4.7 - 5.1 per cent from the 3.5 - 3.7 per cent range predicted in the previous policy.

The RBI sees inflation picking up in the near term but expects it to moderate below target by second quarter of next fiscal.

"The Monetary Policy Committee (MPC) recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture. Accordingly, the MPC decided to keep the policy repo rate unchanged and continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target," the RBI said, in the fifth bi-monthly monetary policy statement.

Following the slide in economic growth to 4.5 per cent the last quarter — the worst numbers in more than six and half years — the RBI was expected to further cut policy rates, but ended up holding the repo rate at 5.15 per cent.

Food inflation spiked to 6.9 per cent in October, pushed up by a sharp increase in prices of vegetables due to heavy unseasonal rains. Prices of onions, in particular, shot up. Inflation in several other food items such as fruits, milk, pulses and cereals also increased.

The upward revision of inflation means that the RBI may not go for a rate cut in its sixth bi-monthly policy, due in February.

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