The Reserve Bank of India (RBI) projected a lower inflation rate of 4.5 percent for the next financial year, compared to 5.4 percent in 2023-24, provided there is a normal monsoon. The central government has mandated the RBI to ensure that the Consumer Price Index (CPI) based inflation remains at 4 percent, with a margin of 2 percent on either side.
Governor Shaktikanta Das, announcing the decision of the Monetary Policy Committee (MPC), highlighted that domestic economic activity is holding up well, supported by momentum in investment demand, optimistic business sentiments, and rising consumer confidence. However, he noted that large and repetitive food price shocks are interrupting the pace of disinflation led by the moderation of core inflation.
Geopolitical events impacting supply chains and volatility in international financial markets and commodity prices are identified as key sources of upside risks to inflation. The cumulative effect of policy repo rate increases is still influencing the economy, and the MPC will monitor any signs of generalization of food price pressures to non-food prices.
Looking ahead, Das stated that the inflation trajectory would be influenced by the evolving food inflation outlook, with Rabi sowing surpassing last year's level. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 percent, with the risks evenly balanced across quarters.
The MPC decided to keep the policy repo rate unchanged at 6.50 percent to sustain the path of disinflation. Das emphasized the need for monetary policy to remain actively disinflationary to anchor inflation expectations and ensure fuller transmission. The MPC remains committed to aligning inflation with the target.
CPI inflation increased successively from its October 2023 trough of 4.9 percent to 5.7 percent by December, driven primarily by food inflation, particularly year-on-year vegetable price increases, despite deflation in fuel. Core inflation softened to a four-year low of 3.8 percent in December, excluding food and fuel.
(With Agency Inputs)
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