RBI MPC Meeting: Central Bank Forecasts 4.5% Inflation In FY25; Lower Than Current Fiscal

RBI MPC: CPI inflation for 2024-25 is forecast at 4.5 per cent, with quarter-wise projections as follows: 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

CPI inflation rose from 4.9 per cent in October 2023 to 5.7 per cent by December, primarily driven by food inflation, particularly in vegetable prices, despite deflation in fuel prices.

The Reserve Bank of India (RBI) in its latest Monetary Policy Committee (MPC) announcement on Thursday projected a decrease in inflation to 4.5 per cent for the upcoming financial year compared to the 5.4 per cent recorded in 2023-24, contingent on the occurrence of a normal monsoon. The central government has mandated the RBI to maintain Consumer Price Index (CPI)-based inflation at 4 per cent, with a 2 per cent margin on either side.

During the MPC meeting, Das highlighted that domestic economic activity remains robust, driven by increased investment demand, positive business sentiments, and growing consumer confidence.

He cautioned about persistent food price shocks affecting the pace of disinflation, alongside potential risks stemming from geopolitical events, supply chain disruptions, and fluctuations in international financial markets and commodity prices. He noted that the impact of previous policy repo rate increases is still unfolding across the economy.

The MPC intends to closely monitor any spillover of food price pressures to non-food items, which could undermine the progress made in reducing core inflation.

Looking ahead, the governor underscored that the inflation trajectory will depend on the outlook for food inflation. While Rabi sowing has exceeded last year's levels and seasonal corrections in vegetable prices are underway, uncertainties persist due to potential adverse weather conditions.

Assuming a normal monsoon, CPI inflation for 2024-25 is forecast at 4.5 per cent, with quarter-wise projections as follows: 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. Das also emphasised a balanced risk outlook.

To sustain the disinflationary path, the MPC decided to maintain the policy repo rate unchanged at 6.50 per cent. As per Das, the importance of continued proactive monetary policy measures to anchor inflation expectations and ensure effective transmission.

CPI inflation rose from 4.9 per cent in October 2023 to 5.7 per cent by December, primarily driven by food inflation, particularly in vegetable prices, despite deflation in fuel prices. Core inflation softened to a four-year low of 3.8 per cent in December, excluding food and fuel components.