RBI Monetary Policy: With Q2 inflation at 4.4%, Q3 inflation at 4.7%, Q4 inflation at 4.3%, and Q1FY26 inflation at 4.4%, the Reserve Bank of India (RBI) kept its 4.5% inflation forecast for FY2025. Shaktikanta Das, the governor of the RBI, stated today that the risks are evenly distributed.
According to Das, stronger-than-anticipated inflation caused the headline rate to stop at 5.1% in June 2024. For a tenth straight month, both fuel and food inflation continued to decline. The months of May and June saw a historic low for core inflation. In May and June, over 75 per cent of headline inflation was caused by food inflation, which accounts for about 46 per cent of the consumer price index (CPI) basket’s weight. In June, the price of vegetables rose rapidly, accounting for almost 35% of inflation; severe inflation pressures continued to be felt in other important food categories.
“Headline inflation has moderated from its peak but unevenly. Looking ahead, food price momentum has remained elevated in July. In Q2:2024-25, though favourable base effects are large, the sharper uptick in price momentum relative to earlier expectations is likely to result in a shallower softening of CPI headline inflation. Inflation is expected to edge up in Q3 as favourable base effects taper off,” said Shaktikanta Das.
“Under the current monetary policy setting, inflation and growth are evolving in a balanced manner, overall macroeconomic conditions are stable, and growth remains resilient. Inflation has been trending downward, and we have made progress in achieving price stability, but we have more resistance to the progress towards our goal of price stability, which has been uneven due to large and persistent supply side shocks, especially in food items. We therefore need to remain vigilant to ensure that inflation moves sustainably towards the target while supporting growth. This approach would be net positive for sustained a lot,” explained the RBI Governor.
According to Das, the Monetary Policy Committee (MPC) has voted by a majority to maintain the policy repo rate at 6.5% following a thorough evaluation of the macroeconomic and financial conditions that are unfolding as well as the overall outlook. As a result, the bank rate is 6.75%, the marginal standing facility rate is at 6.25%, and the standing deposit facility rate stays at 6.25%. By a vote of four out of six members, the MPC also resolved to keep concentrating on removing accommodation to guarantee that inflation gradually approaches the objective while promoting growth.
Das continued by saying that until the headline CPI inflation is regularly in line with the goal, the MPC has emphasized the necessity of continuing the disinflationary policy. Long-term pricing stability lays a strong groundwork for an extended era of fast expansion. Therefore, to sustain growth while making sure that inflation gradually converges to the target, the MPC thinks it is necessary to maintain the disinflationary posture of removing accommodation.
Drs. Shashanka Bhide, Rajiv Ranjan, Michael Debabrata Patra, and Shri Shaktikanta Das maintained the policy repo rate at 6.50%. Dr Ashima Goyal and Professor Jayanth R. Varma voted in favour of a 25 basis point decrease in the policy repo rate.
Drs. Michael Debabrata Patra, Rajiv Ranjan, Shashanka Bhide, and Shri Shaktikanta Das voted in favour of maintaining the emphasis on removing accommodations to support development while making sure that inflation progressively approaches the goal. Dr. Ashima Goyal and Professor Jayanth R. Varma voted in support of taking a neutral stance. The next meeting of the MPC is scheduled for October 7–9, 2024.
