RBI cuts growth, raises FY23 inflation forecast

NEW DELHI: The Monetary Policy Committee (MPC) of the Reserve Bank of India did not make any change to the two most important monetary policy tools in its April meeting — the policy rate remains unchanged at 4% and monetary policy stance continues to be accommodative — but made it clear that monetary policy focus, going forward, will start pivoting towards controlling inflation rather than throwing the kitchen sink at the Indian economy’s growth problem.

The latter has been MPC’s stated strategy since the pandemic hit, and the shift in policy focus is not because it does not see the growth challenge as critical. In fact, growth prospects of the economy are expected to worsen going forward. It is the upside risks to inflation, thanks to the ongoing geopolitical crisis, which has forced a change in MPC’s stance.

Inflation and growth forecasts

Benchmark inflation growth is expected to be 5.7% in 2022-23, a sharp increase from the 4.5% forecast from February, and the GDP growth for 2022-23 is now expected to be 7.2%, a downward revision from the 7.8% projection.

given in the MPC resolution published on April 8 underline the recalibration in policy. Benchmark inflation growth, as measured by the Consumer Price Index (CPI), is expected to be 5.7% in 2022-23, a sharp increase from the 4.5% forecast in the February meeting (it took place before the Russian invasion of

Ukraine). GDP growth for 2022-23 is now expected to be 7.2%, a downward revision from the 7.8% projection in the February meeting.

The MPC resolution clearly spells out the change in policy priorities. While the February 2022 resolution talked about