Context:According to the monetary policy report (MPR) of RBI,The consumer price index (CPI)-based inflation, which had stayed elevated in the last few months, is expected to soften during the course of the FY21.

More about the news:

  • Unscheduled monetary policy meeting:
    • The  monetary policy report (MPR) was released recently following the unscheduled monetary policy meeting held in end March to discuss the uncertainties arising from the nationwide lockdown. 
    • Since the review was conducted in end March, the early policy review, scheduled for April, was withdrawn.
  • Projections by RBI:CPI inflation is tentatively projected to lower from 4.8% in Q1 of 2020-21 to 4.4% in Q2, 2.7% in Q3 and 2.4% in Q4 of FY21.
  • Expected even more reduction in the rate:
    • RBI also added the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently anticipated and ease core inflation further.
  • Implications of the drop in oil prices:
    • The sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade.
    • On the other hand the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand.
  • On exchange rates:
    • Renewed bouts of global financial market volatility caused by the uncertainty of macroeconomic impact of the COVID-19 is most likely to exert pressure on the Indian rupee
  • RBI refraining from making any prediction on growth:
    • Under highly fluid circumstances during the lockdown in which incoming data for growth prediction is fluctuating on a daily basis.
    • This is why forecasts for real GDP growth in India are not provided during current MPR, awaiting a clear fix on the intensity, spread and duration of COVID-19.