The Reserve Bank of India (RBI) has opted to maintain its inflation forecast for the fiscal year 2024-25 (FY24-25) at 4.5%. This decision comes amidst concerns about rising food prices due to the scorching summer and potential disruptions caused by global factors. While the recent drop in crude oil prices offers some relief, the RBI remains vigilant towards potential inflationary pressures.
Key Points:
- RBI Inflation Target: The RBI’s target for inflation remains at 4%, with a tolerance band of +/- 2%.
- FY23-24 Inflation: Inflation for the previous fiscal year (FY23-24) was 5.4%, in line with RBI’s projections.
- MPC Decision: The Monetary Policy Committee (MPC) voted 4-2 to keep the repo rate unchanged at 6.5% for the eighth consecutive time. This reinforces the policy stance of a gradual withdrawal of accommodative measures.
- Inflation Projections:
- Q1 (April-June): 4.9%
- Q2 (July-September): 3.8% (assuming normal monsoon)
- Q3 (October-December): 4.6%
- Q4 (January-March): 4.5%
- Risks are considered evenly balanced.
- Food Price Concerns:
- Summer heat and rising global food prices pose a potential upside risk to inflation.
- Food inflation remains high at 8.7% (April 2024), driven by vegetables and pulses.
- Vegetable prices have seen a significant uptick due to the summer season.
- Crude Oil Prices:
- Recent decline in Brent crude oil prices below $80 per barrel eases some pressure on inflation.
- Indian government highlights the need for diversification to mitigate risks from oil price fluctuations.
- RBI’s Annual Report:
- The report emphasizes uncertainties related to weather variations and their impact on inflation.
- Climate shocks pose a significant risk to the outlook of food inflation and overall economic stability.
- Ongoing heatwave could further exacerbate inflationary pressures by impacting agricultural yields.
Conclusion:
The RBI’s decision to maintain the inflation forecast reflects their cautious approach towards managing inflationary pressures. While factors like lower oil prices offer some relief, the battle against inflation is not over. The RBI will continue to monitor food prices and other potential risks to achieve its inflation target in the long run.
