RBI monetary policy: MPC keeps FY25 inflation forecast unchanged at 4.5%

RBI MPC Announcement: The Reserve Bank of India (RBI) maintained its 4.5% inflation projection for 2024–2025 with Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6% and Q4 at 4.5%. The risks are evenly balanced, said Governor of the RBI, Shaktikanta Das today. 

Das stated that CPI headline inflation softened  further in March and April, but that persistent food inflation pressures outweighed the benefits from code disinflation and fuel deflation. Despite some reduction, pulses and vegetables, inflation persisted in double digits. Visitable prices are rising this summer after a brief winter season correction.

"The deflationary trend in fuel was driven primarily by the LPG price cuts in early March. Gold inflation softened for the 11th consecutive month since June 2023. Services inflation moderated to a historic low, and goods inflation remained contained during the exceptionally hot summer season. The low reservoir levels may put stress on the summer crop of vegetables and fruits. The lobby arrivals of pulses and vegetables need to be carefully monitored. Global food prices have also started inching up. 

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Prices of industrial metals have registered double-digit growth in the current calendar. year so far, these trends, if sustained, could accentuate the recent uptick in input cost conditions for farms. On the other hand, the forecast of an above-normal monsoon bodes well for the cliff season, with procurement having surpassed last year's level. In fact, the preferred stocks of wheat and rice are well above the norms. These developments could bring respite to food inflation pressures, particularly in cereals and pulses. The outlook on crude oil prices remains uncertain due to geopolitical tensions. assuming a normal monsoon, CPI inflation for 2024–25 is projected at 4.5%," explained RBI Governor. 

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Shaktikanta Das also stated that there are concerns that the final leg of disinflation in India will be long and difficult due to ongoing geopolitical conflicts, supply chain disruptions, and commodity price volatility. With growth holding firm, monetary policy has more leeway to pursue price stability to ensure that inflation aligns with the target on a long-term basis in the current environment.

In its current form, monetary policy is entirely focused on price stability, which successfully anchors inflation expectations and provides the necessary basis for long-term growth.

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Das stated that the Monetary Policy Committee (MPC) decided to maintain the policy rate at 6.5% following a thorough evaluation of the macroeconomic and financial developments. Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50%. Dr.Ashima Goyal and Prof. Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points.

Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted for a change in stance to neutral, according to RBI's release. 

The next meeting of the MPC is scheduled during August 6 to 8, 2024.

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