MPC ups inflation projection for Q3 and Q4, keeps it at 6.7% for full FY23

Panel cuts economic growth forecast by 20 bps to 6.8% for the year; Q3 lowered by 20 bps and Q4 by 40 bps

After writing to the government over its failure to contain the retail price inflation up to six per cent for three consecutive quarters, the Monetary Policy Committee (MPC) on Wednesday retained its projections for the rate of price rise at 6.7 per cent for the current financial year. However, it raised it slightly by 10 basis points (bps) for the third and fourth quarters each.

The reason may be that the second quarter saw a bit less inflation rate at 7.04 per cent than 7.1 per cent expected by MPC in its September review.

MPC expected Q3 inflation at 6.6 per cent and that during Q4 at 5.9 per cent.

With October inflation already at 6.8 per cent, the panel implicitly projected the rate to come below that in the next two months. It, however, may stay over the Reserve Bank of India's mandate of six per cent for each of the two months: November and December.

MPC assumed Indian basket of crude to cost $100 billion a barrel on an average. The price has been lower than $100 since August. It stood at $87.55 in November. As on Tuesday, it stood at $78.58

The panel slashed its projections for economic growth rate by 20 basis points to 6.8 per cent for the current financial year even as the second quarter yielded it at 6.3 per cent, the same as the panel had projected.

Economic growth projections for the third and fourth quarters were slashed by 20 bps and 40 bps to 4.4 per cent and 4.2 per cent respectively.

The economy had grown 13.5 per cent in the first quarter of the current financial year against the MPC's projection of 16.2 per cent, forcing the panel to cut the projections for the full year growth to 7 per cent from earlier 7.2 per cent in its September review.

The panel said the economy faces accentuated headwinds from protracted geopolitical tensions, tightening global financial conditions and slowing external demand.

The agricultural outlook has brightened, with the prospects of a good rabi harvest, it said, adding the sustained rebound in contact-intensive sectors is supporting urban consumption.

Robust and broad-based credit growth and the government’s thrust on capital spending and infrastructure should bolster investment activity, it said.