2nd Covid-19 wave disrupts RBI’s GDP, inflation projections

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Ziraat Times
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New Delhi: The second Covid-19 wave is likely to disrupt RBI’s GDP and inflation projections.

The Central Bank was banking on lower food inflation trajectory to shape the near-term inflation outlook. But things have changed dramatically since the last bi-monthly policy announcement. Let’s look at the challenges to RBI’s growth and inflation estimates for 2021-22.

There is now a downward bias to RBI’s GDP projections for the current fiscal year. The RBI has projected a real GDP of 26.2 per cent to 8.3 per cent in the first half (April-September) of 2021-22. The third quarter (Oct-Dec) GDP was projected at 6 per cent with the entire fiscal year at 10.5 per cent.

The RBI’s inflation projection has also come under risk. The RBI had projected a retail inflation of consumer price index (CPI) of 5.2 to 5 per cent in the first half (August to September) of 2021-22. The third quarter projection is at 4.3 per cent. The RBI was projecting a lower food inflation, which has a large share in the CPI basket, but the inflation numbers have surprised the market.

The supply side issues post the second wave will also impact the core inflation which has been very sticky in the past few months. The retail inflation or consumer price index (CPI) is currently at 5.03 per cent for February, which is more than the RBI ‘s mandated 4 per cent with a tolerance of 2 to 6 per cent.

The government has also decided to continue with 4 per cent inflation targeting for the next five years. The wholesale inflation index (WPI) has also doubled from 2.26 per cent in January to 4.17 per cent in February. The impact of WPI will get reflected in CPI with a lag effect.

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