RBI monetary policy: CPI inflation for FY25 is projected at 4.5%
- RBI monetary policy: RBI projects CPI inflation for FY25 at 4.5% with Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6%, and Q4 at 4.5%. Governor Das emphasizes the need for inflation to remain moderate and align with targets for economic stability.
RBI MPC Announcement: The Reserve Bank of India (RBI) projected CPI inflation for year 2024–25 (FY25) is 4.5%, with Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6%, and Q4 at 4.5%.The RBI governor declared that the risks are evenly distributed.
The RBI governor, Shaktikanta Das, said during the RBI MPC announcement that two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest.
"We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential for the best interest of the economy that CPI inflation continues to moderate and aligns with the target on a durable basis, said Das during RBI MPC announcement today.
According to Shaktikanta Das, CPI inflation is predicted to drop to 3.8% by Q2FY25 before rising once more to around 4.5% by the end of the fiscal year.
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Das pointed out that inflation has come down significantly but remains above the 4% target. Food inflation continues to exhibit considerable volatility, which is impeding the ongoing disinflation process. High and persistent food inflation could unhinge the anchoring of inflation expectations, which is why our ongoing effort is to ensure fuller transmission of policy actions and the anchoring of household inflation expectations.
In January–February 2024, headline inflation decreased from 5.7% in December to 5.1%. Food inflation increased slightly to 7.8% in February after stabilizing in January, mostly due to increases in vegetables, eggs, meat, and fish. In February, fuel prices continued to decrease for the sixth straight month. It was one of the lowest in the current CPI series in February, with both the goods and services components showing a decline in inflation. CPI core, or the CPI excluding food and fuel, disinflation brought it down to 3.4%.
“The success of the disinflation process so far should not distract us from the vulnerability of the inflation trajectory to the frequent incidence of supply-side shocks. Our effort is to ensure price stability on an enduring basis, paving the way for sustained periods of high growth,” said the RBI governor today.
RBI MPC - Inflation Outlook
Going ahead, food price uncertainties would continue to weigh on the inflation outlook, said Shaktikanta Das.
However, record rabi wheat output in 2023–2024 is anticipated, which will help keep cereal prices in check. Early signs of a normal monsoon are also encouraging for the kharif season. The growing frequency of climatic shocks, however, continues to be a significant upward risk to food prices.
Das went on to say that there is cause for concern due to low reservoir levels, particularly in the southern states, and the forecast of above-average temperatures in April and June. Close observation is required of the pricing of important vegetables and the tight supply and demand situations for some pulses. Fuel price deflation is likely to deepen in the near term following the recent cut in LPG prices.
“After witnessing sustained moderation, cost push pressures faced by firms are showing upward bias. The recent firming up of international crude oil prices warrants close monitoring. Geo-political tensions and volatility in financial markets also pose risks to the inflation outlook. Taking into account these factors and assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent,” said the RBI governor today.
RBI Monetary Policy Committee outcome
On April 3, 4, and 5, 2024, the MPC met. It was decided by a vote of five to one to keep the policy repo rate at 6.50% following a thorough analysis of the macroeconomic and financial developments that have been taking place as well as the forecast.
Additionally, the MPC decided—by a majority of five of the six members—to remain focused to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
Voting in favor keeping the policy repo rate at 6.50% were Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shri Shaktikanta Das. A vote to lower the policy repo rate by 25 basis points was given by Professor Jayanth R. Varma.
Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. Prof. Jayanth R. Varma voted for a change in stance to neutral.
The MPC's upcoming meeting is set for June 5–7, 2024.
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