As RBI revises inflation forecast, Uday Kotak expresses concern
In its first monetary policy announcement for 2022-23, the Reserve Bank of India (RBI) raised its inflation forecast to 5.7% from its previous estimate of 4.5%.
The RBI has revised its inflation forecast upward and sharply cut its growth forecast for the economy for the current financial year due to rising geopolitical tensions since the end of February, which poses downside risks to the economy. domestic growth and increased risks to inflation forecasts.
The Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, held its first meeting of the current financial year a few days ago.
The RBI’s MPC, however, left the standard repo rate unchanged at its current 4%.
With the RBI raising the country’s retail inflation rate forecast and keeping the repo rate unchanged, Uday Kotak, CEO of Kotak Mahindra Bank, expressed concern and questioned these decisions.
He tweeted, “Inflation estimate ramps up to 5.7% from 4.5% assuming $100 oil. Exit in the fourth quarter of 2010 was estimated at 5.1%. The current repo rate is 4%. If India has to move to 0% real interest rate i.e. inflation – interest rate = 0, then we need to increase rate 1%. 4 rate hikes per quarter?
Policy Rbi: Estimates of inflation rise sharply to 5.7% from 4.5% assuming $100 of oil. Exports for the fourth quarter of year 23 were estimated at 5.1%. The current repo rate is 4%. If India has to move to 0% real interest rate i.e. inflation – interest rate = 0, then we need to increase rate 1%. 4 rate hikes per quarter?
– Uday Kotak (@udaykotak) April 10, 2022
The RBI governor stated that inflation is projected to be 5.7% in 2022-23, with Q1 at 6.3%, Q2 at 5.8%, Q3 at 5.4% and Q4 at 5.1% .
The governor said these estimates are based on the fact that crude oil prices will continue to rise and average around $100 per barrel in fiscal year 22-23 due to ongoing geopolitical tensions.
Clearly, inflation, rather than growth, seems to be the RBI’s primary concern. As the COVID crisis draws to a close, manufacturing activity begins to ramp up and supply chain concerns are gradually being addressed.
So the RBI can expect inflation to fall. But Russia’s invasion of Ukraine changed the situation. Supply chain concerns resurfaced and supplies of critical items were disrupted.
Russia and Ukraine are major producers of many essential goods, including crude oil. After Russia invaded Ukraine, the prices of these items skyrocketed.
As a result, instead of reducing inflation, the RBI forecasts it will increase. However, the central bank predicts that inflation will decline in each quarter of the current fiscal.
But these stats could increase if crude oil prices rise and stay above $100 per barrel, or if India receives less rain than expected.
