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The Reserve Bank of India has projected real GDP growth at 9.5% in 2021-22, consisting of 18.5% in Q1; 7.9% in Q2; 7.2% in Q3; and 6.6% in Q4:2021-22.

The Monetary Policy Committee (MPC) at its meeting on Friday notes that the second wave of COVID-19 has altered the near-term outlook, necessitating urgent policy interventions, active monitoring and further timely measures to prevent emergence of supply chain bottlenecks and build-up of retail margins.

A hastened pace of the vaccination drive and quick ramping up of healthcare infrastructure across both urban and rural areas are critical to preserve lives and livelihoods and prevent a resurgence
in new waves of infections. At this juncture, policy support from all sides – fiscal, monetary and sectoral – is required to nurture recovery and expedite return to normalcy, the MPC said.

The MPC has decided to retain the prevailing repo rate at 4% and continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

Inflation outlook

The inflation trajectory is likely to be shaped by uncertainties impinging on the upside and the downside. The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook.

Excise duties, cess and taxes imposed by the Centre and States need to be adjusted in a coordinated manner to contain input cost pressures emanating from petrol and diesel prices, the MPC committee observed.

A normal south-west monsoon along with comfortable buffer stocks should help keep cereal price pressures in check. Recent supply side interventions are expected to ameliorate the tightness in the pulses market. Further supply side measures are needed to soften pressures on pulses and edible oil prices.

With declining infections, restrictions and localised lockdowns
across states could ease gradually and mitigate disruptions to supply chains, reducing cost pressures. Weak demand conditions may also temper the pass-through to core inflation.

Considering all these factors, CPI inflation is projected at 5.1% during 2021-22: 5.2% in Q1; 5.4% in Q2; 4.7% in Q3; and 5.3% in Q4:2021-22.

Reacting to status quo on benchmark interest rate, M Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said the decision to hold the policy rates by the MPC is on expected lines and there are no surprises.

“On the GDP guidance, the RBI lowered its forecast to 9.5% from 10.5% for FY22. On inflation, the RBI sees a slight hardening of prices in Q3 and Q4 FY22 and forecasts 5.1% inflation for FY22. The expectation of inflation moving within the MPC’s upper range provides scope for the continuation of the accommodative policy stance for the near term,” he added.

Overall, the MPC’s growth and inflation estimates seem credible with an upward bias in the former, and the assurance of continuation of accommodative stance to support and nurture the growth recovery, while assuring to keep the interest rate low, he added.


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