The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) reduced its consumer price index (CPI) inflation prediction for the first, second, and fourth quarters of the next Financial Year 2024–25 (FY25) on Friday. The central bank's goal inflation rate of 4 percent is expected to be missed, with 3.8 percent predicted for the second quarter.
During its first meeting of the fiscal year, the rate-setting panel decided to maintain the repo rate at 6.5%. While the monetary policy position of "withdrawal of accommodation" was maintained with a majority of five votes, five out of six members supported the rate decision.
The RBI revised its prior prediction of 5% inflation to 4.9% inflation in the first quarter (April–June). Estimates for the fourth quarter (January–March) are 4.5%, down from the initial 4.7% prediction. The 4.5 percent inflation estimate for FY25 did not alter.
"As anticipated, the MPC policy acknowledged the flexibility of international narratives, notwithstanding the persistence of favorable local dynamics. This implies that, in certain situations, achieving financial stability may even take precedence over managing inflation, according to Head Economist Madhavi Arora, Emkay Global Financial Services.
"Even though the RBI officially targeted inflation, we have long maintained that the policy has been somewhat pegged to the Fed [US Federal Reserve], particularly over the last two years." This makes sense since changing external dynamics suggest that policy discretion is necessary to maintain financial stability. The near-term issue of excess supply of INR and bonds combined with the fluidity of global narratives and policy repricing might make it difficult for the RBI to strike a balance in its policy inclinations, according to Arora.
The RBI would gradually shift from its typical "Hawk-Dove" signaling to "Gracklish," she continued, suggesting a non-committal position and limited, specific forward guidance.
The gigantic elephant in the room was inflation. The elephant has now departed from the chamber and seems to be heading towards the jungle. In this monetary policy speech, RBI governor Shaktikanta Das expressed the desire for the elephant to move into and remain in the jungle.
He pointed out that since December, when it peaked, headline inflation had declined. Nonetheless, the ongoing disinflation process has been hampered by persistent pressures on food prices, creating difficulties for the inflation's eventual decline to the goal.
