The Reserve Bank on Thursday pegged the retail inflation for fiscal 2023-24 at 5.1 per cent, a tad lower than its April projection, on expectations of higher rabi crop and the likelihood of normal monsoon.
In April, the RBI's projection of consumer price index (CPI) based retail inflation was 5.2 per cent.
"CPI inflation is projected at 5.1 per cent for 2023-24, with Q1 at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent. The risks are evenly balanced," RBI Governor Shaktikanta Das said.
He was unveiling the second bi-monthly monetary policy of the current fiscal.
The consumer price inflation eased during March-April 2023 and moved into the tolerance band, declining from 6.7 per cent in 2022-23.
Headline inflation, however, is still above the target as per the latest data and is expected to remain so, according to RBI's projections for 2023-24, he said.
Therefore, close and continued vigil on the evolving inflation outlook is absolutely necessary, especially as the monsoon outlook and the impact of El Nino remain uncertain, he added.
The governor further said that with the recent rabi harvest remaining largely immune to adverse weather events, the near-term inflation outlook looks more favourable than at the time of the April MPC meeting. The forecast of a normal southwest monsoon by the India Meteorological Department (IMD) augurs well for the kharif crops.
According to an RBI survey, inflation expectations of households for three months to one year ahead horizon have moderated by 60 to 70 basis points since September 2022.
This would indicate that anchoring of expectations is underway and that our monetary policy actions are yielding the desired results, he said.
"At the same time, given the uncertainties, we need to maintain Arjuna’s eye on the evolving inflation scenario. Let me re-emphasise that headline inflation still remains above the target and being within the tolerance band is not enough. Our goal is to achieve the target of 4.0 per cent going forward," Das said.
The CPI inflation for May is scheduled to be announced on June 12.
The government has mandated the central bank to ensure inflation remains at 4 per cent with a margin of 2 per cent on either side.