May need to go beyond keeping 'Arjuna's eye' to tame inflation: RBI Governor

Unveiling the bi-monthly monetary policy, Governor Das said the moderation in headline inflation to 4.6 per cent in the first quarter of 2023-24 was in line with projections

"We have to stand in readiness to go beyond keeping Arjuna’s eye to deploying policy instruments, if necessary" to contain inflation, said Reserve Bank Governor Shaktikanta Das on Thursday.

Headline consumer price index-based inflation projection for the second quarter of 2023-24 has been revised up substantially, primarily due to the price shock from vegetables, at 6.2 per cent by the RBI form 5.2 per cent estimated in June.

Unveiling the bi-monthly monetary policy, Governor Das said the moderation in headline inflation to 4.6 per cent in the first quarter of 2023-24 was in line with the projections set out in the June MPC meeting.

There was a pick-up in headline inflation to 4.8 per cent in June due to an upturn in food inflation.

"Going by the past trends, vegetable prices may see a significant correction after a few months. The prospects of kharif crops have brightened, thanks to improvement in the progress of the monsoon," he said.

Uncertainties, however, remain on domestic food price outlook due to sudden weather events and possible El Niño conditions in August and beyond, he added.

"Assessment of the future trajectory of inflation is a continuous process. We have a choice to modify our inflation projections in every meeting of MPC, if warranted, in the interest of better guidance; or avoid frequent changes and revise them only on fewer occasions for simplicity of presentation," Das said.

Given the continuing uncertainties, the RBI's latest CPI inflation projections for 2023-24, assuming a normal monsoon, is revised to 5.4 per cent, he said. The estimate in June was 5.1 per cent.

The inflation is Q2 has projected at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. CPI inflation for Q1:2024-25 is projected at 5.2 per cent. The risks are evenly balanced.

The Governor further said the higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.

The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity, he said.

Weak external demand, geoeconomic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook, he added.

Taking all these factors into consideration, the RBI has retained the real GDP growth for 2023-24 at 6.5 per cent with Q1 at 8 per cent, Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent, with risks evenly balanced.