RBI Raises Inflation Forecast To 5.7%, Keeps Repo Rate Unchanged. Here’s What Uday Kotak Has To Say

As RBI Revises Inflation Forecasts, Uday Kotak Expresses ConcernIn its first monetary policy announcement for 2022-23, the Reserve Bank of India (RBI) has raised its inflation forecast to 5.7 percent against the previous estimate of 4.5 percent.The RBI has revised its inflation projections upwards and sharply cut its growth projections for the economy in the current financial year due to increased geopolitical tensions since the end of February, which poses a downside risk to domestic growth and upside risk to inflation projections. The Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, held its first meeting in the current financial year a few days ago.The RBI’s MPC, however, kept the benchmark repo rates unchanged at the current level of 4 percent.With the RBI raising the country’s retail inflation rate projection and keeping repo rates unchanged, Uday Kotak, the CEO of Kotak Mahindra Bank, expressed concern and questioned the decisions.He tweeted, “Sharp increase in inflation estimate to 5.7% from 4.5% assuming 100$ oil. Exit q4 fy23 estimate 5.1%. Present Repo rate at 4%. If India has to move to 0% real rate that is inflation – interest rate = 0, we need 1% increase of rates. 4 rate hikes of a quarter each?Rbi policy:Sharp increase in inflation estimate to 5.7% from 4.5% assuming 100$ oil.Exit q4 fy23 estimate 5.1%. Present Repo rate at 4%. If India has to move to 0% real rate that is inflation – interest rate =0, we need 1% increase of rates. 4 rate hikes of a quarter each?— Uday Kotak (@udaykotak) April 10, 2022The RBI Governor stated that inflation was being anticipated to be 5.7 percent in 2022-23, with Q1 at 6.3 percent, Q2 at 5.8 percent, Q3 at 5.4 percent, and Q4 at 5.1 percent.The Governor stated that these estimates were based on the fact that crude oil prices would remain elevated and average around $100 per barrel in FY 22-23 due to the ongoing geopolitical tension.Clearly, inflation, rather than growth, seems to be the RBI’s primary concern. With the COVID crisis appearing to end, production had started ramping up, and supply chain concerns were progressively being ironed out.So, the RBI may have expected inflation to fall. But the Russian invasion of Ukraine has changed the situation. Supply chain concerns have again resurfaced, and supplies of crucial commodities have been disrupted.Russia and Ukraine are major producers of a variety of essential commodities, including crude oil. Following Russia’s invasion of Ukraine, the price of these goods surged.As a result, instead of inflation lowering, the RBI forecasts it to rise. Still, the central bank anticipates inflation to fall with each quarter of the current fiscal.But these statistics could rise if crude oil prices rise and remain above $100 per barrel, or if India receives less rain than projected



Source link