RBI Sees India’s Inflation Rate Falling Below 4% As Lockdown Threatens Demand
A naval officer walks past the Reserve Bank of India building in Mumbai, India. (Photographer: Kanishka Sonthalia/Bloomberg)

RBI Sees India’s Inflation Rate Falling Below 4% As Lockdown Threatens Demand

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The Reserve Bank of India expects retail inflation to fall below its targeted 4 percent in the first half of 2020-21 as the coronavirus lockdown poses serious challenges to demand in the Indian economy.

India’s retail inflation rate is on a decline—slipping 170 basis points from its peak in January to 5.91 percent in March. The wholesale inflation stood at 1 percent last month.

"In the period ahead, inflation could recede even further, barring supply disruption shocks and may even settle well below the target of 4 percent by the second half of 2020-21," RBI Governor Shaktikanta Das said in a video conference Friday morning.

India’s Monetary Policy Committee uses the Consumer Price Index, a measure of retail inflation, for its bi-monthly policy decisions. It has set its mid- to long-term inflation target at 4 percent with a 2 percentage-point bias on either side.

"Such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought on by Covid-19. This space needs to be used effectively and in time," Governor Das said.

Citing National Statistical Office's data released on April 13, which pegged CPI at 5.91 percent in March, Das said though the figure was based on data available till March 19, it reflected that there was softening of food inflation by around 160 basis points. In other categories, inflation pressures remained firm, he said.

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Food prices have increased by 2.3 percent during the lockdown, Das said, citing daily data on 22 essential items covered by the Department of Consumer Affairs. Though onion prices have continued to decline, PDS kerosene prices have slumped 24 per cent in the first fortnight of April, he added.

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Domestic LPG prices also declined by 8 percent.  "These early developments suggest that inflation is on a declining trajectory, having fallen by 170 basis points from its January 2020 peak," Das said.

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