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Inflation outlook is uncertain at this point, may ease by H2FY21, says RBI Guv Shaktikanta Das

Inflation outlook is uncertain at this point, may ease by H2FY21, says RBI Guv Shaktikanta Das

Inflation outlook is uncertain at this point, may ease by H2FY21, says RBI Guv Shaktikanta Das
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By Mousumi Paul  May 22, 2020 12:21:06 PM IST (Updated)

In a major move on Friday, the Reserve Bank of India reduced the repo rate by 40 basis points to 4 percent from 4.4 percent earlier. The RBI Governor Shaktikanta Das also said that the inflation outlook currently is uncertain as COVID-19 pandemic has crippled the global economy. 

In a major move on Friday, the Reserve Bank of India reduced the repo rate by 40 basis points to 4 percent from 4.4 percent earlier. The RBI Governor Shaktikanta Das also said that the inflation outlook currently is uncertain as COVID-19 pandemic has crippled the global economy.

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Headline inflation may remain firm in the first half, but will ease out in the second half aided by favourable base effects,  said Das.
Supply shock to food prices may linger, the MPC felt and called for re-appraisal of import duties.
Das also added that the biggest blow from COVID-19 has been to private consumption. Industrial production shrank by 17 percent in March and Services PMI plunged to an all-time low in April, he noted.
He further said the exports have suffered their worst slump in the last 30 years. Food inflation has increased to 8.6 percent  in April, 2020. Inflation outlook has become complicated due to partial CPI release.
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"Deficient demand may hold down pressures on core inflation (excluding food and fuel), although persisting supply dislocations impart uncertainty to the near term outlook. However, volatility in financial markets could have a bearing on inflation. These factors, combined with favourable base effects, are expected to take effect and pull down headline inflation below target in Q3 and Q4 of 2020-21," Das said in his address.
"Domestic economy activity impacted severely due to the 2-month lockdown. High frequency indicators point to collapse in demand. Double whammy of demand and production loss has taken a toll on fiscal measures," noted Das.
 
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