Big headache for RBI's MPC! Inflation monster to grow bigger
Covid has created disruption in the semi-urban and rural areas, which were untouched in the first wave. The global commodity prices are also on an upswing


- Jun 3, 2021,
- Updated Jun 3, 2021 11:25 PM IST
The Monetary Policy Committee (MPC) has kept the repo rate, the rate at which banks borrow short term funds from the Reserve Bank of India, low at 4 per cent since May last year. The RBI has been holding the rates low to support growth, but risk of inflation is now a new headache for the central bank. The wholesale price index (WPI), which was 2.5 percent in January, has shot up to 10.5 percent in April this year.
The consumer price index (CPI), which the RBI tracks for setting interest rates, was slightly lower at 4.2 percent in April as against 5.52 percent in March. But a lot has changed in the last one month. Covid has created disruption in the semi-urban and rural areas, which were untouched in the first wave. The global commodity prices are also on an upswing.
Companies are feeling the pinch of higher input costs, which will get reflected in the prices of final goods. The retail inflation numbers are already very close to 4 percent rate targeted by the MPC with a lower and upper band of 2 to 6 percent, respectively. In its first bi-monthly monetary policy for 2021-22, the RBI projected a CPI of around 5.0 percent in 2021-22. It remains to be seen if RBI revises its 2021-22 projections for inflation.
The Monetary Policy Committee (MPC) has kept the repo rate, the rate at which banks borrow short term funds from the Reserve Bank of India, low at 4 per cent since May last year. The RBI has been holding the rates low to support growth, but risk of inflation is now a new headache for the central bank. The wholesale price index (WPI), which was 2.5 percent in January, has shot up to 10.5 percent in April this year.
The consumer price index (CPI), which the RBI tracks for setting interest rates, was slightly lower at 4.2 percent in April as against 5.52 percent in March. But a lot has changed in the last one month. Covid has created disruption in the semi-urban and rural areas, which were untouched in the first wave. The global commodity prices are also on an upswing.
Companies are feeling the pinch of higher input costs, which will get reflected in the prices of final goods. The retail inflation numbers are already very close to 4 percent rate targeted by the MPC with a lower and upper band of 2 to 6 percent, respectively. In its first bi-monthly monetary policy for 2021-22, the RBI projected a CPI of around 5.0 percent in 2021-22. It remains to be seen if RBI revises its 2021-22 projections for inflation.