RBI: CPI Inflation to ease from 4.8% to 4.4% in Q2

On April 9, 2020, the Reserve Bank of India projected that the consumer Price Index is to ease from 4.8% in Q1 to 4.4% in Q2 of the financial year 2020-21.

Highlights

The estimated easing of CPI implies that the aggregate demand will weaken further. RBI had reduced repo rate and cash reserve ratios during the Monetary Policy Review held in March.

The RBI further estimates that the CPI is to reduce to 2.7% in Q2 and 2.4% in Q4. With the demand weakening, RBI had injected 50 billion USD of liquidity to the banks to support the economy.

Inflation

Currently, RBI is following target inflation rate in the country. The inflation target has been set at 4% with +2% and -2% as target bands on either sides. This means that RBI will try to maintain the inflation rate between 2% and 6%.

The Inflation Targeting was adopted by GoI in 2015.

Consumer Price Index

The Consumer Price Index is weighted average of prices of consumer goods and services such as food, transportation and medical care. It is calculated by taking price changes of every item in the basket and averaging them.

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