RBI monetary policy: MPC projects FY25 inflation at 4.8%

RBI Monetary Policy meeting: The Reserve Bank of India (RBI) revised its inflation projection for 2024–2025 to 4.8% with Q3 at 5.7%, and Q4 at 4.5% The consumer price index (CPI) inflation for the first quarter of the next financial year 2025-26 is projected at 4.6% and the second quarter at 4%. The risks are evenly balanced, said Governor of the RBI, Shaktikanta Das today.

In the last MPC meeting in October, the RBI maintained its 4.5% inflation projection for 2024–2025 with Q2 at 4.1%, Q3 at 4.8% and Q4 at 4.2%.

“Inflation surged above the upper tolerance band of 6% in October, driven by a sharp uptick in food inflation. Food inflation pressures are likely to linger in Q3 of the current financial year and start easing only from Q4 of the current financial year,” said Shaktikanta Das today.

The RBI Governor stated that a good Rabi crop season will be critical for reducing food inflation pressures. Early indications suggest adequate soil moisture content and reservoir levels that are conducive to Rabi sowing. Estimates of record Kharif production should help ease the elevated prices of rice and tur dal in particular. Additionally, vegetable prices are expected to experience a seasonal winter correction. However, the evolving trajectory of domestic edible oil prices, following the increase in import duties and the rise in global prices, needs to be monitored closely.

Further, the MPC has observed that while the near-term inflation and growth outcomes in India have faced some challenges since the October policy, there are encouraging signs on the horizon. Economic activity is set to improve, buoyed by rising business and consumer sentiment, as evidenced by recent surveys conducted by the Reserve Bank. Although the recent spike in inflation highlights certain risks related to multiple and overlapping shocks, these challenges also present an opportunity for strategic interventions to enhance stability and foster a more resilient economic environment. With careful monitoring and proactive measures, the outlook can be navigated positively.

“Heightened geo-political uncertainties and financial market volatility add further upside risks to inflation. High inflation reduces the purchasing power of both rural and urban consumers and may adversely impact private consumption,” said Shaktikanta Das today.

RBI October Monetary Policy Outcome

During the Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das announced that the central bank has opted to maintain the policy repo rate at 6.5% for the 11th consecutive time, on Friday.

The central bank decided to maintain its 'neutral' stance, which it adopted during the October meeting, moving away from its earlier position of 'withdrawal of accommodation.'

“Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%. The MPC also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth,” the RBI said in an press release.

Shri Saugata Bhattacharya, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50%. In contrast, Dr. Nagesh Kumar and Professor Ram Singh voted to reduce the policy repo rate by 25 basis points.

Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shri Shaktikanta Das all supported maintaining a neutral stance on monetary policy. They emphasized the importance of achieving a sustainable alignment of inflation with the target while also supporting economic growth. The next meeting of the Monetary Policy Committee (MPC) is scheduled for February 5 to 7, 2025.

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