Consumer price index (CPI) based inflation, which averaged 6.7 per cent in 2022-23, may moderate this financial year as risks are likely to ebb with downward corrections in global commodity and food prices and easing of the pass-through from high input cost pressures of last year, said the Reserve Bank of India.
At the same time, India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures, the central bank said in its annual report for 2022-23 on Tuesday.
The 250-bps hike in policy repo rate between May 2022 and February 2023 would steer the disinflationary process, along with supply side measures to address transient demand-supply mismatch due to food and energy shocks, said the report.
The central bank held rates in its April policy though Governor Shaktikanta Das emphasised that it was a pause and not a pivot, thus retaining the option to tighten the monetary policy further.
“With a stable exchange rate and a normal monsoon—unless an El Nino (weather) event strikes–the inflation trajectory is expected to move down over 2023-24, with headline inflation edging down to 5.2 per cent from the average level of 6.7 per cent recorded last year. Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” the report said.
The next meeting of the monetary policy committee (MPC) is scheduled between June 6 and 8, 2023.
The March 2023 round of the central bank’s consumer confidence survey reveals that the current situation is perceived by consumers to have improved on account of optimism in the general economic situation and in household income.
The report said crowding-in effects of sustained increase in government capex over recent years is expected to spur higher private investment in 2023-24.
Commenting on the external sector, RBI said the current account deficit is expected to moderate, drawing strength from robust services exports and the salubrious impact of moderation in commodity prices of imports.
“The favourable domestic growth outlook, lower inflation, and business friendly policy reforms could, however, help sustain buoyant FDI inflows. Furthermore, inward remittances are likely to remain robust owing to better growth prospects in the Gulf countries,” it said.
