The RBI Governor Shaktikanta Das stated in latest monetary policy meeting that global growth and trade are steadily decelerating, global commodity prices remain firm and financial markets worldwide are turning more volatile. Monetary policy normalisation has become the order of the day across most central banks. The war has globalised inflationary pressures across geographies, and there are increasing risks of long-term inflation expectations getting unanchored. While prices of a few commodities – such as metals and fertilisers – have seen some softening, most food and all energy prices remain elevated.

Against this background, the domestic CPI inflation for April 2022 surged to 7.8 per cent – the fourth consecutive month of inflation being above the upper tolerance level of 6.0 per cent. Adverse spillovers from high global commodity prices continue to impinge on domestic prices in April and thereafter. Domestic factors also played a role, with a strong heat wave and consequent loss of production resulting in significant pick-up in prices of several food items. According to our latest assessment, the average annual inflation in the current year (2022-23) is expected to be 6.7 per cent, with the first three quarters remaining above six per cent.

Growth impulses, on the other hand, are broadly evolving in line with expectations as borne out by the available high-frequency indicators during April-May 2022. The forecast of a normal southwest monsoon, the improvement in employment conditions as reflected in the rates of labour force participation (LFP) and employment, the early results from RBI surveys indicating steady rise in capacity utilisation and improving non-food credit growth augur well for the growth outlook. Together, these developments can be expected to support private consumption and investment. Net household financial savings (HFS) in 2021-22, although moderating from the preceding year, remained above pre-pandemic levels and along with healthy balance sheets of banks and corporates, can support private consumption and investment. Merchandise exports clocked double-digit growth for the fifteenth successive month in May 2022, despite heightened global uncertainty. In the wake of all these developments, the projection of growth for 2022-23 has been retained at 7.2 per cent, the same as in the April MPC resolution.

Das noted that while high inflation continues to be the major concern, revival of economic activity remains steady and is gaining traction. The time is appropriate to go for a further increase in the policy rate to effectively deal with inflation and inflation expectations.

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