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Business News/ Markets / RBI monetary policy: MPC keeps FY24 inflation forecast at 5.4%, governor highlights 4 key risks

RBI monetary policy: MPC keeps FY24 inflation forecast at 5.4%, governor highlights 4 key risks

RBI MPC meeting: For 2023–2024, the RBI forecasts CPI inflation at 5.4%, with Q2 expected to see an increase to 6.4%, Q3 to 5.6%, and Q4 to reach 5.2%. The first-quarter CPI is expected to rise by 5.2% in 2024–2025. The current fiscal year's inflation was predicted to be 5.4%.

RBI maintains status quo; keeps repo rate unchanged at 6.5%Premium
RBI maintains status quo; keeps repo rate unchanged at 6.5%

RBI monetary policy meeting: The Reserve Bank of India (RBI) maintained its 5.4% inflation projection for 2023–2024 and committed to take prompt action to stop any spillover effects from shocks in the price of food and fuel throughout the world.

“Consumer Price Index (CPI) inflation is projected at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%. The risks are evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2%," said Shaktikanta Das. 

As was largely anticipated, the RBI held the repo rate constant at its fourth straight policy meeting on Friday. The central bank kept the repo rate unchanged at 6.50% and stance of ‘withdrawal of accommodation’. 

RBI monetary policy meeting was a three-day meeting of RBI Governor Shaktikanta Das-led Monetary Policy Committee (MPC), which began on Wednesday, October 4. The next RBI monetary policy meeting is scheduled during December 6-8, 2023.

In order to ensure that inflation gradually aligns with the committee's target while continuing to support economic growth, the RBI also reaffirmed its policy position of "withdrawal of accommodation." The position was supported by five out of the six committee members.

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According to Das, the full effects of previous rate hikes have yet to be felt throughout the economy.

“The MPC observed that the recurring incidence of large and overlapping food price shocks can impart generalisation and persistence to headline inflation. Economic activity, on the other hand, has remained resilient. Taking into account the evolving inflation-growth dynamics and the cumulative policy repo rate hike of 250 basis points which is still working through the economy, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting," said Das in his speech today. 

Also Read: RBI Monetary Policy: Status quo on rates to policy stance - 5 key takeaways from RBI governor statement

The RBI MPC chose to keep its attention on the withdrawal of accommodations because the transmission of the policy repo rate's 250 basis point increase to bank lending and deposit rates is still not complete. Shaktikanta Das said that the MPC is still very watchful and prepared to implement timely policy changes as may be necessary to bring inflation to the target and stabilise inflation expectations.

RBI MPC meeting - CPI Inflation

Inflation is expected to average 5.4% in the fiscal year 2023–2024, according to the central bank's prediction, which remained unchanged. The target for economic growth for the year remained at 6.5% as well.

Retail inflation for the year as a whole dipped to 6.83% in August from a 15-month high of 7.44% in July, but it still remained significantly above than the central bank's comfort zone of 2%-6%.

“CPI headline inflation surged by 2.6 percentage points to 7.4 per cent in July due to spike in vegetable prices, before moderating somewhat in August to 6.8 per cent. Fuel inflation edged up to 4.3 per cent in August. Core inflation (i.e., CPI excluding food and fuel) softened to 4.9 per cent during July-August 2023," said the Monetary Policy Statement. 

As unpredictable weather has hampered the production of essentials like vegetables, milk, and cereals, sharp price increases in food have been the primary cause.

“Headline inflation had surged in July driven by tomato and other vegetable prices. It corrected partly in August and is expected to see further easing in September on the back of moderation in these prices. A silver lining amidst all these is declining core inflation (i.e., CPI excluding food and fuel). The overall inflation outlook, however, is clouded by uncertainties from the fall in kharif sowing for key crops like pulses and oilseeds, low reservoir levels, and volatile global food and energy prices," said Das in his speech.

Following the decision by the central bank and the remarks regarding inflation, the benchmark 2033 bond yield was trading slightly higher at 7.2240%. Before the announcement, it was at 7.2197 percent.

Positively, during July–August 2023, core inflation decreased to 4.9%. From its most recent peak in January 2023, it has fallen by almost 140 basis points. The core component must continue to deflate in order for prices to remain stable.

Also Read: RBI Monetary Policy Committee Meeting Live Updates: RBI maintains status quo; keeps repo rate unchanged at 6.5%


On the strength of the recent drop in LPG costs and the correction in vegetable prices, Das indicated that the outlook for inflation in the short term will likely improve. The future trajectory will be influenced by a variety of variables, including the amount of pulses sowed the level of reservoirs, the presence of El Nio, and the volatility of the global food and energy markets.

According to the Reserve Bank’s enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in growth of input costs and selling prices. Taking into account these factors, CPI inflation is projected at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%, with risks evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2%, mentioned the Monetary Policy Statement release. 

Also Read: RBI Governor Shaktikanta Das doubles gold loan limit for these banks. Check details here

Four Risks highlighted by RBI Governor, Shaktikanta Das

While the price of vegetables, particularly tomatoes, and the decline in the price of LPG are projected to result in a short-term decrease in inflation, the trajectory of prices in the future will depend on an array of factors.

Kharif Onion Production

The area of pulses sown for kharif crops is lower than it was a year ago. It's important to keep a close eye on kharif onion production.

Kharif Sowing

The decline in kharif sowing for important crops like pulses and oilseeds, low reservoir levels, and fluctuating international food and energy costs, however, cast doubt on the inflation outlook overall.

Demand Supply mismatches

Demand supply mismatches in spices are likely to keep these prices at elevated levels.

El Niño conditions

El Nio conditions, as well as the price of food and energy on a global basis, will also influence the inflation trajectory. These elements, along with the volatility of global financial markets, raise concerns about the the future.

Also Read: RBI MPC Meeting October 2023. Full text of RBI Governor Shaktikanta Das' policy statement


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Published: 06 Oct 2023, 10:44 AM IST
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