The Reserve Bank on Wednesday, February 8, projected retail inflation to ease to 5.3 per cent in next fiscal from 6.5 per cent this year on assumptions of lower imported inflation, even though core inflation remains sticky. The RBI's inflation outlook for current fiscal has improved from 6.8 per cent projected earlier, to 6.5 per cent, on the back of steeper than expected decline in vegetable prices and Indian basket of crude at USD 95 a barrel.

"Looking ahead, while inflation is expected to moderate in 2023-24, it is likely to rule above the 4 per cent target. The outlook is clouded by continuing uncertainties from geopolitical tensions, global financial market volatility, rising non-oil commodity prices and volatile crude oil prices. At the same time, economic activity in India is expected to hold up well," RBI Governor Shaktikanta Das said.

The low volatility of the Indian rupee relative to peer currencies limits the impact of imported price pressures and other global spillovers.

"...assuming an average crude oil price (Indian basket) of USD 95 per barrel, inflation is projected at 6.5 per cent in 2022-23, with Q4 at 5.7 per cent. On the assumption of a normal monsoon, CPI inflation is projected at 5.3 per cent for 2023-24, with Q1 at 5 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.6 per cent. The risks are evenly balanced," Das said.

Consumer price index-based inflation in India moved below the upper tolerance level of 6 per cent during November-December 2022, driven by a strong decline in prices of vegetables. Core inflation, however, remains sticky, the RBI said.