RBI sees inflation at 4.5% in FY’25, lower than 5.4% in current fiscal

PTI

Mumbai, February 8

The RBI on Thursday projected a lower inflation of 4.5 per cent in the next financial year, than 5.4 per cent in 2023-24, provided there is normal monsoon.

The Central Government has tasked the Reserve Bank of India (RBI) to ensure that the Consumer Price Index (CPI) based inflation remains at 4 per cent, with a margin of 2 per cent on either side.

The Monetary Policy Committee (MPC), which sets the key benchmark rate, noted that domestic economic activity is holding up well and is expected to be backed by the momentum in investment demand, optimistic business sentiments and rising consumer confidence, Reserve Bank Governor Shaktikanta Das said.

“On the inflation front, large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation.

“Geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices are key sources of upside risks to inflation. The cumulative effect of policy repo rate increases is still working its way through the economy,” he said announcing the MPC decision.

He further said the MPC will carefully monitor any signs of generalisation of food price pressures to non-food prices which can fritter away the gains in the easing of core inflation.

Going forward, Das said the inflation trajectory would be shaped by the evolving food inflation outlook. Rabi sowing has surpassed last year’s level.

The usual seasonal correction in vegetable prices is continuing, though unevenly. Yet considerable uncertainty prevails on the food price outlook from the possibility of adverse weather events. Effective supply side responses may keep food price pressures under check.

“Assuming a normal monsoon next year, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 5.0 per cent; Q2 at 4.0 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent (Chart 2). The risks are evenly balanced,” the Governor said.

Emphasising that the path of disinflation needs to be sustained, Das said the MPC decided to keep the policy repo rate unchanged at 6.50 per cent.

Monetary policy, he added, must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission.

“The MPC will remain resolute in its commitment to aligning inflation to the target,” he said.

From its October 2023 trough of 4.9 per cent, CPI inflation increased successively in the next two months to 5.7 per cent by December.

Food inflation, primarily year-on-year vegetable price increases, drove the pick-up in headline inflation, even as deflation in fuel deepened. Core inflation (CPI inflation excluding food and fuel) softened to a four-year low of 3.8 per cent in December.

#Inflation #Monsoon #Mumbai #Reserve Bank of India RBI