Extreme Weather Conditions Could Drive Inflation, Warns RBI

The RBI, which primarily considers CPI data when formulating its bi-monthly monetary policy, has kept the benchmark interest rate steady at 6.5 per cent since February 2023, due to inflation concerns

The Reserve Bank's April Bulletin on Tuesday highlighted potential risks to inflation from extreme weather conditions and ongoing geopolitical tensions, which could also lead to volatility in crude oil prices. Consumer Price Index (CPI)-based retail inflation dropped to 4.9 per cent in March, following an average rate of 5.1 per cent in the two previous months.

The RBI, which primarily considers CPI data when formulating its bi-monthly monetary policy, has kept the benchmark interest rate steady at 6.5 per cent since February 2023, due to inflation concerns. The Bulletin's article on the 'State of the Economy' noted that global economic growth remained robust in the first quarter of 2024, with a positive outlook for world trade. Treasury yields and mortgage rates are rising in major economies, as expectations of interest rate cuts diminish.

In India, the report indicated a positive trend in real GDP growth, driven by strong investment demand and optimistic business and consumer sentiment.

The RBI clarified that the opinions expressed in the Bulletin article belong to the authors and do not necessarily reflect its views.

The Monetary Policy Committee (MPC) of the RBI, led by Governor Shaktikanta Das, in its latest outcome decided to maintain the repo rate at 6.5 per cent with a 5:1 majority vote. This marks the seventh consecutive decision to keep the rate steady. The Standing Deposit Facility (SDF) rate remains at 6.2 per cent, while the Marginal Standing Facility (MSF) and bank rates are unchanged at 6.75 per cent . The central bank has also upheld its 'withdrawal of accommodation' policy stance.

Meanwhile, the RBI said the views expressed in the Bulletin article are of the authors and do not represent the views of the Reserve Bank of India.

The central bank bought $8.56 billion on a net basis in the spot foreign exchange market in February.  The RBI did not sell any dollars in the spot market in February. In January, the central bank had bought a net of $1.95 billion in the spot market.