Mumbai: RBI retains inflation forecast for FY25 at 4.5%

Mumbai: The Reserve Bank of India (RBI) on Friday retained its retail inflation forecast for the current fiscal at 4.5 per cent given a normal monsoon, while stressing that uncertainties related to the food price scenario need to be closely monitored. The Consumer Price Index (CPI)-based retail inflation is projected at 4.5 per cent, while the quarter-wise projections are 4.9 per cent in the first quarter (April-June), 3.8 per cent in the second quarter, 4.6 per cent in the third quarter and 4.5 per cent in the fourth quarter. “Risks are evenly balanced,” RBI Governor Shaktikanta Das said while announcing the bi-monthly monetary policy. The Reserve Bank, which is entrusted with the mandate of maintaining inflation at 4 per cent (with a margin of 2 per cent on either side), primarily takes the CPI into account while arriving at its monetary policy. Das said CPI headline inflation moderated further during March-April, although pressure from food inflation offset the gains from disinflation in core and deflation in fuel groups.

Despite some moderation, inflation in pulses and vegetables remained in double digits. Vegetable prices are witnessing an uptick in summer after a slight improvement in the winter season. The deflationary trend in fuel was mainly driven by the LPG price cut in early March. Core inflation moderated for the 11th consecutive month since June 2023. Services inflation eased to historic lows and commodity inflation remained contained. “An exceptionally hot summer season and low reservoir levels could put pressure on the summer harvest of vegetables and fruits. Rabi arrivals of pulses and vegetables need to be carefully monitored,” the governor said. Das also said global food prices have started to gain momentum. Industrial metal prices have registered double-digit growth so far in the current calendar year. “If these trends continue, the recent increase in input cost conditions for firms could be further boosted,” Das said. On the other hand, he said the forecast of a better-than-normal monsoon bodes well for the kharif season.

Wheat procurement has surpassed last year’s level. Buffer stocks of wheat and rice are well above the norm. Das said these developments could provide relief from food inflation pressures, especially in cereals and pulses. However, the outlook on crude oil prices remains uncertain due to geopolitical tensions. “While the MPC (Monetary Policy Committee) notes the inflation containment achieved so far without hurting growth, it remains cautious of any upside risks to inflation, especially food inflation, which could derail the inflation path,” Das said. “Therefore, monetary policy should remain accommodative and firm in its commitment to bring inflation down to the target of 4.0 per cent on a durable basis,” he said. He emphasised that continued price stability would lay a strong foundation for a period of high growth.