RBI Holds Firm on 4.5% Inflation Projection for FY25 Amidst Uncertainties

The Reserve Bank of India (RBI) upheld its inflation forecast for the fiscal year 2024-25 at 4.5%, contingent upon a normal monsoon. Governor Shaktikanta Das, while addressing the media during the bi-monthly monetary policy review, highlighted the significance of closely monitoring uncertainties pertaining to the outlook on food prices.

Governor Das stated, “The risks are evenly balanced,” as he revealed the CPI-based retail inflation projections, indicating 4.9% in Q1 (April-June), 3.8% in Q2, 4.6% in Q3, and 4.5% in Q4. The RBI, entrusted with maintaining inflation at 4% with a margin of 2% on either side, bases its monetary policy decisions predominantly on the CPI.

During March-April, CPI headline inflation exhibited a further softening, albeit offset by persistent food inflation pressures, particularly in pulses and vegetables, which remained in double digits. Governor Das pointed out the upward trend in global food prices and double-digit growth in industrial metal prices, potentially exacerbating input cost conditions for firms.

Highlighting seasonal concerns, Governor Das mentioned, “The exceptionally hot summer season and low reservoir levels may put stress on the summer crop of vegetables and fruits.” He emphasized the necessity to closely monitor rabi arrivals of pulses and vegetables.

While the forecast of an above-normal monsoon is encouraging for the kharif season, uncertainties loom over crude oil prices due to geopolitical tensions. Governor Das underscored the Monetary Policy Committee’s vigilance towards any upside risks to inflation, particularly from food inflation, which could derail the path of disinflation.

Governor Das reiterated the importance of maintaining monetary policy’s disinflationary stance to align inflation with the target of 4.0% on a durable basis. He emphasized that sustained price stability would lay the groundwork for a period of robust economic growth.