A Reuters poll of 45 economists has forecast retail inflation — based on the consumer price index (CPI) — at 4.42 per cent in May, which will be a 20-month low and close to the Reserve Bank of India’s (RBI) medium-term target of 4 per cent.
On Thursday, while the monetary policy committee (MPC) retained the policy repo rate at 6.5 per cent, RBI governor Shaktikanta Das said it was not enough for retail inflation to come within the central bank’s target band of 2-6 per cent. Inflation should now align with the mandated target of 4 per cent.
Analysts said Das's remarks were a signal that only a sustained fall in inflation, closer to the four-per-cent level, could lead to the RBI cutting interest rates in the future.
''There is momentum, but we would like to see sustained momentum, not one-off. There are still uncertainties. We would like to see a sustained momentum towards the alignment of inflation with the headline targets,’’ Das said at the post-policy press conference.
In April, food inflation, which accounts for nearly half of the CPI basket, had moderated to 3.84 per cent from 4.79 per cent in the preceding month. According to the Reuters poll, it is likely to have declined further in May.
The June 2-7 poll projected retail inflation at 4.42 per cent in May, down from 4.70 per cent in April. It will be the lowest number since October 2021.
Estimates varied from 4.10- 5.10 per cent which is below the RBI's 6 per cent upper tolerance limit.
The survey also showed wholesale price inflation likely slipped to an annual -2.35 per cent in May from -0.92 per cent in April.
The MOSPI (ministry of statistics and programme implementation) will release May inflation data on Monday.
Following the monetary policy announcement, analysts said the RBI's inflation projections for the fiscal showed inflation could reach 4 per cent only by 2025.
The monetary policy committee estimated inflation would come at 5.1 per cent in 2023-24: with first quarter CPI at 4.6 per cent, followed by 5.2 per cent in the second, 5.4 per cent in the third and 5.2 per cent in the fourth quarter.
According to MPC, though the forecast of a normal south-west monsoon by the India Meteorological Department (IMD) augurs well for Kharif crops, the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production.
It added that early results from the RBI’s surveys showed that manufacturing, services and infrastructure firms expect input costs and output prices to harden.
