RBI MPC Meet: Committed to bring inflation back to target of 4% on a durable basis, says RBI governor

RBI governor Shaktikanta Das on June 7 said that the central bank remains committed to bring inflation back to target of 4 percent on a durable basis. The Reserve Bank also retained Consumer Price Index (CPI) inflation projection for FY25 unchanged at 4.5 percent.

The decision was announced by RBI Governor Shaktikanta Das after the Monetary Policy Committee (MPC) meeting held from June 5 to 7. Deflation in fuel prices is ongoing, food inflation remains elevated, said Das.

While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation.

Private consumption is recovering with steady discretionary spending in urban areas, said Das, adding investment activity continues to gain traction.

The RBI governor noted that vegetable prices are currently on the rise for the summer season. He attributed the deflationary trend in fuel prices mainly to cuts in LPG prices. Furthermore, he highlighted the global trend of increasing food prices, indicating a shift in the broader market dynamics.

“FY25 domestic economic activity has maintained resilience,” Shaktikanta Das said.  “Headline inflation continues to be in a disinflation trajectory; repeated food price shocks slowed down disinflation process,” Das added.

CPI headline inflation softened further during March-April, though persisting food inflation pressures offset the gains of disinflation in core and deflation in the fuel groups. Despite some moderation, pulses and vegetables inflation remained firmly in double digits. Vegetable prices are experiencing a summer uptick following a shallow winter season correction, the RBI said

The deflationary trend in fuel was driven primarily by the LPG price cuts in early March.24 Core inflation softened for the 11th consecutive month since June 2023. Services inflation moderated to a historic low and goods inflation remained contained, it added.

Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 percent with Q1 at 4.9 percent; Q2 at 3.8 percent; Q3 at 4.6 percent; and Q4 at 4.5 percent. The risks are evenly balanced, said Das.

According to our projections, the second quarter of 2024-25 is likely to see some correction in headline inflation, but this is likely to be one-off on account of favourable base effects and may reverse in the third quarter.34 At the current juncture, the uncertainties related to the food price outlook warrant close monitoring, especially their spillover risks to headline inflation, the RBI governor said.

Normal south-west monsoon expected to boost kharif production, enhance water storage in reservoirs, he added.