RBI Governor stresses vigilance amid inflation moderation

RBI maintains repo rate: Reserve Bank of India (RBI) Governor Shaktikanta Das, in the aftermath of the Monetary Policy Committee (MPC) meeting, underlined the need for continued vigilance amidst evolving inflation dynamics. Despite headline inflation easing to an average of 5.5 per cent during April-December 2023 from the previous year's 6.7 per cent, concerns persist regarding the continuation of food price volatility and potential supply shocks.

In a comprehensive assessment of the inflation trajectory, Governor Das highlighted the considerable moderation in core inflation, reaching a four-year low of 3.8 per cent in December. However, the specter of food price fluctuations looms large, exerting notable influence on overall inflation trends.

“The inflation trajectory, going forward, would be shaped by the outlook on food inflation, about which there is considerable uncertainty. Adverse weather events remain the primary risk with implications for the rabi crop. Increasing geopolitical tensions are leading to supply chain disruptions and price volatility in key commodities, particularly crude oil,” said Das. 

Looking ahead, the RBI projects CPI inflation at 5.4 per cent for the current fiscal year (2023-24), with the final quarter anticipated at 5.0 per cent. Assuming a normal monsoon in the upcoming year, inflation for 2024-25 is forecasted at 4.5 per cent, with the quarterly breakdown 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.

Governor Das underscored the imperative of maintaining a delicate balance between inflation containment and supporting economic growth. 

“Over the last two years, monetary policy has prioritised inflation over growth, undertaking calibrated increase in policy repo rate by 250 basis points and withdrawal of stimulus measures. Monetary policy was supported by pro-active supply-side measures by the government. That said, the job is not yet finished, and we need to be vigilant about new supply shocks that may undo the progress made so far,” added the Governor.

On MPC outcome, Nikhil Gupta, Chief Economist, Motilal Oswal said, “The RBI has kept monetary policy unchanged, as broadly expected, with no change in interest rates or policy stance (Both with 5-1 voting.) Further, the Governor again stressed the importance of achieving a 4 per cent inflation target.” 

“The Bank forecasts real GDP growth at 7 per cent in FY25, with inflation at 4.5 per cent vs. 7 per cent and 5.4 per cent, respectively in FY24,” added Gupta.