Even Reserve Bank of India (RBI) has raised inflation forecast This is well above the central bank’s order to keep retail inflation between 2 per cent and 6 per cent, by 100 basis points (bps) to 6.7 per cent for 2022-23. Now, as the RBI has failed to maintain its mandate on retail inflation, the law requires that it will be required to submit a report to the Center explaining the reason for not being able to do so.
In accordance with the Reserve Bank of India Act, 1934, where the central bank fails to meet the inflation target, it shall, in a report to the central government, determine— (a) the reasons for the failure to achieve the inflation target; (b) the remedial action proposed to be taken by the Bank; and (c) an estimate of the time period within which the inflation target will be achieved in accordance with the timely implementation of the proposed remedial actions.
retail inflation At an eight-year high of 7.79 per cent in April, it is the fourth consecutive month that inflation has remained above the RBI’s target range of 2-6 per cent. Higher inflation rate in April prompted RBI’s Monetary Policy Committee To go for a 40-basis-point repo rate hike in an off-cycle policy review. Following this, within a month, the RBI on Wednesday again increased the repo rate by 50 basis points.
The central government, in consultation with the RBI, sets an inflation target in terms of the consumer price index once every five years.
To control price hikes, the government in 2016 ordered the RBI to keep retail inflation at 4 per cent, with a margin of 2 per cent on either side for the five-year period ending March 31, 2021.
In March last year, the government said, “The inflation target under the Reserve Bank of India Act, 1924, for the period from April 1, 2021 to March 31, 2026, has been kept at the same level (2-6 per cent) as It was for the last five years… so, there has been no change.”
For the second time in almost a month, the Reserve Bank of India (RBI) on Wednesday raised the repo rate by 50 basis points to 4.90 per cent to control inflation. In early May, the central band also increased the key policy rate by 40 basis points.
Announcing the decision, RBI Governor Shaktikanta Das said, “Inflation has risen significantly above the upper tolerance level… We have already prioritized our policies to contain inflation without losing growth requirements. Our approach Underscores our commitment to move forward in a calibrated manner towards normal monetary conditions. We will remain focused on bringing inflation closer to the target and promoting macroeconomic stability.”
Upasana Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “The hike in the 50-bp repo rate is due to the continuation of inflation and continued upside risk. Noting that inflation is expected to remain above 6% through 3QFY23 , RBI will have to step up the action. We are looking at another 60-85 bps hike in the rest of FY23 to manage inflation expectations.
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