With the June retail inflation or Consumer Price Index (CPI) coming in at 6.26 percent, marginally lower than the 6.3 percent recorded in May, there is an overall sense of relief. However, now the big question is – can the Reserve Bank of India (RBI) continue to keep liquidity plentiful and focus on growth, despite the June inflation number remaining above the RBI’s comfort level for the second consecutive month? On the other hand, industrial output, or the Index of Industrial Production (IIP), recorded 29.3 percent in the month of May, 8 percent lower than what it was in April.

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To shed more light on what these numbers truly mean, Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India (SBI), Abhishek Upadhyay, Senior Economist at ICICI Securities Primary Dealership, and Lakshmi Iyer, CIO - Debt and Head Product at Kotak Mahindra AMC, discussed this further.

“June inflation numbers are indeed a surprise on the downside, much lower than the market expectations and also lower than what we were projecting. So, it is a welcome relief,” said Ghosh. “The core consumer price index (CPI) number for May has also been revised downward to 6.4 percent. That is the good news that possibly the May inflation number could be an aberration. However, on the other side, the possible bad news is that even though the inflation has declined, it could continue to remain sticky,” Ghosh added.

According to him, going forward, the possibility of inflation declining from the current levels looks a little bit weak.

In terms of FY22 inflation forecast, Ghosh said, “Our inflation forecast was at 6.1 percent for the full year. We are continuing with that.”

According to him, the RBI is likely to continue with its accommodative policy in August and October.

“After the May data, we have revised its estimate from close to 5 percent average inflation for the full year to 5.5 percent,” Upadhyay said.

Iyer expects bond yields to ease. “The inflation data has been more like the one-eyed man in the land of the blind kind of a scenario. So, I think there will be a small respite for the bond market. We have seen bond yields ease. The markets will be on tenterhooks, it is not going to be an easy game, but for now, there is going to be some respite,” she explained.

According to Ghosh, Q1FY22 gross domestic product (GDP) estimates will be in double-digit, around 15 percent or so. “That means we are still sticking to a full-year forecast at around 8 percent,” he added. However, he cautioned that there is a significant downside risk to GDP estimates.

For the full interview, watch the accompanying video.

(Edited by : Dipika Ghosh)