In the latest Monetary Policy Committee (MPC) meeting, Reserve Bank of India (RBI) Governor Shaktikanta Das attributed the sluggish decline in overall retail inflation to persistent high food prices. The minutes of the meeting, released on Friday, reveal that the MPC voted 4:2 to maintain the benchmark interest rate (repo) at 6.25 per cent for the eighth consecutive time.
Governor Das noted that while headline CPI inflation is gradually moderating, the pace remains slow. He highlighted that the final stages of disinflation are proving to be both gradual and prolonged, primarily due to food inflation. "Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation," Das said. He expressed optimism that a normal monsoon could eventually ease price pressures on essential food items.
According to Das, large favourable base effects might temporarily push inflation below the target rate in the June quarter, but he warned of a possible rise in the third and fourth quarters of the current fiscal year.
The decision to hold the policy repo rate steady was supported by MPC members Shashanka Bhide, Rajiv Ranjan (RBI executive director), Michael Debabrata Patra (RBI deputy governor), and Das himself. External MPC members Ashima Goyal and Jayanth R Varma voted to reduce the rate by 25 basis points.
The RBI's latest Bulletin, released on Wednesday, notes that retail inflation in India is gradually easing. However, volatile and elevated food prices continue to disrupt the disinflation trajectory. An article in the June 2024 Bulletin, titled "State of the Economy," pointed out that global growth demonstrated resilience in the first quarter of 2024. This resilience has prompted many central banks to adopt a less restrictive monetary policy stance as inflation rates decline globally.
Domestically, high-frequency indicators suggest that India's real GDP growth in the first quarter of FY24-25 is maintaining the pace seen in the previous quarter. Additionally, the prospects for agriculture are improving, aided by the early onset of the southwest monsoon, as stated in the article led by RBI Deputy Governor Michael Debabrata Patra.