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The Reserve Bank of India on Friday projected the retail inflation at 5.1 percent in the current financial year ending March 31, 2022.

The projection is well within the Monetary Policy Committee’s target to keep the rate of inflation at 4 percent with an upper or lower tolerance level of 2 percent.

Presenting the second bi-monthly monetary policy review, RBI Governor Shaktikanta Das announced that the key repo rate — the short term lending rates to banks — will be kept unchanged at 4 percent.

Repo is the rate at which RBI lends funds to commercial banks when needed. It is a tool that the central bank uses to control inflation. The reverse repo rate is the rate at which the RBI borrows from banks. 

Taking into consideration the measures taken so far as well as the upside risks, Das said the CPI (Consumer Price Index) inflation is projected at 5.1 percent during 2021-22.

This consists of 5.2 percent in the first quarter, 5.4 percent in the second quarter, 4.7 percent in the third quarter and 5.3 percent in the fourth quarter of this fiscal, with risks broadly balanced, he said.

According to Das, upside risks to inflation emanates from the persistence of the second COVID-19 wave and consequent restrictions on activity on a virtually pan-India basis.

“In such a scenario, insulating prices of essential food items from supply-side disruptions will necessitate active monitoring and preparedness for coordinated, calibrated and timely measures by both Centre and state governments to prevent the emergence of supply-side bottlenecks and increase in retail margins,” the governor said.

Earlier, the central bank had projected retail inflation at 5.2 percent for the 2021 March quarter. RBI has the mandate to keep inflation at 4 percent with a bias of plus or minus 2 percent. 

“The rural demand remains resilient, urban demand is gaining traction and should pick up further with a pick-up in vaccination drive,” said Das. “The global economy is showing some recovery but the path remains uncertain.”