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Updated December 5th, 2019 at 16:47 IST

RBI expects inflation rate to increase further over the next few months

The RBI, during the MPC meeting, said that retail inflation is set to increase further on the basis of the Consumer Price Index in the near future.

Reported by: Devarshi mankad
RBI
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The Reserve Bank of India, during its fifth bi-monthly Monetary Policy, revised the forecast for retail inflation based on consumer price index (CPI) to 5.1-4.7% for the second quarter of the financial year 2020 from 3.5-3.7% earlier. The food inflation increased to 6.9% in October, which is a 39 month high. 

READ: We Should Be Growing At 8-9%: Former PM Dr Manmohan Singh On 4.5% Q2 GDP Growth Rate

Inflation set to increase further

The MPC meeting of the RBI took place on Friday, and the Central Bank, among other announcements, said the MPC unanimously kept the Repo Rate unchanged at  5.15%. The reverse repo-rate is also unchanged at 4.90%. 

The RBI statement read that the retail inflation, which is measured on a year-on-year basis to the Consumer Price Index (CPI), increased acutely to 4.6%. During the previous meeting, CPI inflation was projected to be 3.4%. The RBI stated that the reason for the sharp increase is the increase in food prices. 

The RBI clarified that the 39-month high in the food inflation is because of a "sharp increase in prices of vegetables due to heavy unseasonal rains". The statement cited the price of onions, which have gone up by 45.3% only in September, and a further 19.6% in October. 

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There has been an increase in other food items such as fruits, mils, pulses, and cereals. The increase in raw material cost of fodder prices in the case of milk, a decline in production and sowing area of pulses and minimum support price effects is the reason for the price increase of the other commodities. The RBI statement further read, "Inflation in CPI excluding food and fuel softened further from 4.2% in September to 3.4% in October, primarily due to favourable base effects. Price increases also moderated across several services as reflected in transportation fares, telephone charges, tuition fees, and house rentals."

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For the near future, the Central Bank expects the prices in vegetables to increase till February 2020 and soften after that. The Bank projects the CPI inflation to increase to 5.1-4.7% for the second half of 2019/20 and first half of 2020/21.

The RBI has also downgraded the real GDP growth for 2019-20 from 6.1% to 5.0%

WATCH: Aditi Nair: Decline In GDP Growth Is Really Not Surprising

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Published December 5th, 2019 at 15:06 IST

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