The RBI's focus on growth may be hampered by growing inflation.
The unexpected increase in retail inflation is expected to make it more difficult for the central bank to prioritize growth, putting its interest rate-setting committee on hold until August 4-6.
Economists predict that, even if the monetary policy committee (MPC) does not hike rates or modify its stance during the meeting, it will warn about increasing inflation. As a result, they anticipate that an increase in the repo rate is unlikely before 2022, while a reverse repo rise could occur in the December quarter.
At its next meeting, the Reserve Bank panel may opt for a wait-and-see approach. The Reserve Bank of India's monetary policy committee would most likely wait for more data to evaluate how the second wave has affected growth.
As measured by the Consumer Price Index (CPI), inflation was 6.3 percent in May, exceeding the Reserve Bank of India's target range of 2-6 percent. However, according to Sameer Narang, chief economist at Bank of Baroda, the MPC is concerned about this, and core inflation has shifted gears and is likely to remain.
As to Section 45za of the RBI Act, 1934, the Reserve Bank of India ('RBI') is responsible for determining the inflation target in terms of the Consumer Price Index ('CPI') once every five years. As a result, the RBI has maintained the current target inflation rate of 4% as measured by the CPI.
The unabated rise in fuel prices is, of course, another source of concern. The central bank has also expressed concern about inflationary pressures emanating from this sector. On Tuesday, the retail price of fuel in Delhi was 96.41 rupees per litre, while it was 102.58 rupees per litre in Mumbai. In Delhi, diesel costs 87.81 per litre, while it costs 94.70 per litre in Mumbai.
Much would, however, rely on the speed with which Covid-19 immunizations are administered and whether they can counteract the effects of a probable third wave. According to data from the Cowin dashboard, India has vaccinated 47.7 million people with two doses of the Covid-19 vaccine.