RBI Governor Shaktianta Das on Friday said retail inflation is expected to remain close to the targeted level by the last quarter of the current fiscal year, however, it is likely to stay above the tolerance level at 6.8 per cent for the quarter ended September 2020.
Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) has decided to keep the key policy repo rate unchanged at 4 per cent, Das said while announcing the outcome the central bank's bi-monthly policy review meeting.
It also decided to continue with the accommodative stance of monetary policy as long as necessary - at least during the current financial year and into the next year - to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.
The RBI has kept the retail inflation target of 4 per cent with a bias of plus/minus 2 per cent.
Consumer Price Index (CPI) inflation is projected at 6.8 per cent in Q2 of 2020-21. Subsequently, large favourable base effects are expected to pull it down to 5.4 per cent in Q3, and 4.5 per cent confidence intervals for headline inflation in Q4 of 2020-21 are 3.2-5.9 per cent and 2.4-6.6 per cent, respectively, RBI said in the policy statement.
"For 2021-22, assuming a normalisation of supply chains with the availability of effective vaccines against COVID-19, a normal monsoon, and no major exogenous or policy shocks, structural model estimates indicate that inflation will move in a range of 4.1-4.4 per cent," it added.
Das, in his statement, said that some of this optimism is being reflected in people's expectations. In the September 2020 round of the RBI's survey, households expect inflation to decline modestly over the next three months, indicative of hope that supply chains are mending.
"Our projections indicate that inflation would ease closer to the target by Q4 of 2020-21," he said.