RBI to remain flexible to tame inflation: Governor
Shaktikanta Das. File
The global economy is going through an uncertain time and concerns around growth and inflation persist, but the central bank believes that there could be some respite from rising prices in the coming months, Das told an economic forum in New Delhi.
“Our current assessment is that inflation may ease gradually in the second half” of the fiscal year to March, given a favourable supply outlook and “high frequency indicators pointing to resilience of the recovery” during the three months to June, he said.
Retail inflation eased marginally in May, after touching an eight-year high of 7.79% in April, but remained above the central bank’s tolerance band of 2% to 6% for a fifth month.
The Reserve Bank of India raised its inflation projection for this fiscal year to 6.7% from 5.7% earlier. Das said it will likely remain above the bank’ upper tolerance band in the first three quarters of the financial year.
The governor also highlighted the need for enhanced policy coordination and dialogue among countries at a time when global factors play a key role in domestic inflation dynamics.
The bank’s raised rates by 50 basis points in June after a 40-bp increase in May, to prevent growing inflationary pressure from becoming broad-based.
Further hikes are likely in coming months, economists predict.
India’s retail inflation eased marginally in May, after touching an eight-year high of 7.79% in April, but remained above the central bank’s tolerance band for a fifth month in a row, suggesting it would continue with rate hikes in August.
India’s trade gap touched a monthly record of $24.3 billion in May hurt by higher commodity prices.
“When oil prices are this high, obviously CAD (current account deficit) will go up. Last several years India has been bridging CAD with capital flows. This year there is headwinds on capital flows,” the official who did not want to be named, told reporters.
The official, however, said India’s macro economic fundamentals remained strong and he was “fairly confident” that India would come out of “well” when the situation improved.
The official also said the government would stick to the fiscal deficit target of 6.4% of GDP for the 2022/23 financial year that started on April 1
Separately, India has extended by two weeks a deadline for the export of 800,000 tonnes of sugar as annual monsoon rains make it tough for many producers to move stocks from factories to ports, the government said on Friday.
Mills in the world’s biggest sugar producer are now allowed to export the sweetener until July 20, the government said in a notification, pushing back a previous date of July 5, which some mills missed after heavy rains impeded transport.
Industry officials welcomed the longer grace period.
“This is a very good step,” said Aditya Jhunjhunwala, president of producer body the Indian Sugar Mills Association (ISMA). “A small quantity was stuck, but that will be exported before the new deadline.”
India set the July 5 deadline last month, after having curbed exports in May, for the first time in six years.
It capped this season’s exports at 10 million tonnes to prevent a surge in domestic prices after mills sold a record volume on the world market. Now, the government should allow further exports of 1 million tonnes of raw sugar that mills had produced for export before the cap, Jhunjhunwala said.
Additional exports are unlikely to lead to a domestic shortage as a bumper crop is expected next season, he added.
India is set to surpass Brazil to become the world’s biggest sugar producer in the marketing year to Sept. 30, ISMA estimates, with output of 36 million tonnes.
As sugar exports are lucrative now, because of firm global prices and a weak rupee currency, the government should announce next season’s policy immediately, said Rahil Shaikh, managing director of trading company MEIR Commodities India.
“Mills and traders can sign contracts for next season now,” he said. “Even if prices fall after a few months, there won’t be any impact on exports.”
