RBI To Focus On Growth Even As Inflation Breaches Tolerance Band

The RBI is unlikely to react yet to multi-month high retail prices as economic recovery remains its prime focus amid the second wave of the pandemic.

The Reserve Bank of India is unlikely to react yet to multi-month high retail prices as economic recovery remains its prime focus amid the deadly second wave of the pandemic, according to two senior sources aware of the central bank's thinking. The annual retail inflation rate rose 6.30 per cent year-on-year in May, up from 4.29 per cent in April and sharply above analysts' estimate of 5.30 per cent. The wholesale price inflation rate rose 12.94 per cent, its highest in at least two decades. "There is a broad-based increase in CPI inflation but it still is not driven by demand and that gives the RBI some leeway. They will continue to wait and watch as a rate hike is out of question for now," the first source said. India's economy grew 1.6 per cent in the March quarter compared with the same period a year earlier, but that was before a massive second wave of infections hit the country which prompted fairly stringent lockdowns across most states causing another round of job losses and a significant dent to demand.