Top headlines: Feb inflation rises to 6.07%; Chandra named AI chairman

 

Retail inflation inched up to 6.07% in February mainly due to an uptick in food prices, remaining above the tolerance limit of the central bank for a second month in a row, showed the government data released on Monday. The Consumer Price Index (CPI) based retail inflation was 5.03% in February 2021 and 6.01% in January this year. According to the data released by the National Statistical Office (NSO), the rate of price rise in the food basket was 5.89% in February, up from 5.43% in the preceding month. The Reserve Bank of India mainly factors in the CPI-based inflation while arriving at its bi-monthly monetary policy.

Inflation printed at 6.07% in February, slightly higher than our estimates. This print, although does not reflect the increase in commodity prices due to Russia-Ukraine crisis. We expect inflation to rise further above 6% in March. For FY23, if oil prices average at $110 pbl in Q1 and moderate thereafter, inflation could still average at 5.7% in the year, taking into account the direct and indirect impact. That said, we do not expect the RBI to change its stance or policy rate at its April meeting," said Sakshi Gupta, senior economist, HDFC Bank. Asia's third-largest economy expanded 5.4% in the October-December quarter, slower than the 6% predicted by economists in a separate Reuters poll. Focusing on growth, not inflation, the Reserve Bank of India has held its interest rates steady at record lows for nearly two years but is due to increase borrowing costs next quarter. ndustrial production expanded by 1.3% in January on an annual basis, mainly on account of improved performance of mining and manufacturing sectors, official data showed on Friday. The Index of Industrial Production (IIP) had contracted by 0.6% in January 2021.

'Covid-19 hangs over future like spectre': RBI in Monetary Policy Report

The macroeconomic risks held forth by the Covid-19 outbreak would be severe for India, the Reserve Bank of India (RBI) said in its monetary policy report, released on Thursday morning.

The impact of the pandemic came at a time when the economy was just at the turn of a recovery, “but Covid-19 now “hangs over the future, like a spectre,” it said. “While efforts are being mounted on a war footing to arrest its spread, Covid-19 would impact economic activity in India directly through domestic lockdown.”

The second-round effects would operate through a severe slowdown in global trade and growth. “More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets.”

These would inevitably accentuate the growth slowdown, which started in the first quarter of the 2018-19 financial year and continued through the second half of 2019-20.

ALSO READ: PM hints at lockdown extension, says situation like 'social emergency'

The outlook for 2020-21 growth was looking up before the Covid-19 scare. There was a bumper rabi harvest, and higher food prices during 2019-20 provided conducive conditions for the strengthening of rural demand. The transmission of policy rate cuts was also improving, with favourable implications for both consumption and investment demand. Reductions in the goods and services tax (GST) rates, corporation tax rate cuts in September 2019, and measures to boost rural and infrastructure spending were to have a positive impact at boosting domestic demand. But “the Covid-19 pandemic has drastically altered this outlook”, the monetary policy report said.
The central bank now expects the global economy “to slump into recession in 2020, as post-Covid-19 projections indicate”. However, the sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade. “But the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand,” the RBI said.

RBI keeps retail inflation within target level for over 12 months

International News

The Reserve Bank on Wednesday kept the retail inflation within its target level for over 12-month, and has projected it to stay within a band of 3.5-3.7 per cent during the second half of this fiscal.
The target for second half of 2019-20 has been set at 3.5-3.7 per cent with risks evenly balanced, the RBI said in the monetary policy review here.
CPI (Consumer Price Index) retail inflation is projected at 3.1 per cent for the second quarter this fiscal.
"The Monetary Policy Committee (MPC) notes that inflation is currently projected to remain within the target over a 12-month ahead horizon," the Reserve Bank of India said.
CPI-based inflation for first half of the next fiscal, beginning April 2020, has been projected at 3.6 per cent.
The RBI has cut the key repo rate - at which it lends to banks - by 0.35 per cent to 5.40 per cent.
In its last policy review in June, the apex bank had projected retail inflation at 3.4-3.7 per cent for the second half of this fiscal.

 The MPC also decided to maintain the accommodative stance on the monetary policy, the RBI said...Read More