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Informist, Wednesday, Oct. 9, 2024

 

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--RBI Das: Retains FY25 CPI inflation forecast at 4.5%
--RBI Das: Revises Jul-Sept CPI inflation forecast to 4.1% from 4.4?rlier
--RBI Das: Revises Oct-Dec CPI inflation forecast to 4.8% from 4.7?rlier
--RBI Das: Revises Jan-Mar CPI inflation forecast to 4.2% from 4.3?rlier
--RBI Das: Revises Apr-Jun CPI inflation forecast to 4.3% from 4.4?rlier
--RBI Das: Risks to inflation forecasts are evenly balanced
--RBI Das: MPC stance neutral, unambiguously focused on 4% CPI aim
--RBI Das: Have space to focus on inflation to bring it to 4% aim
--RBI Das: Developments since Aug suggest further evidence of meeting CPI aim
--RBI Das: To remain unambiguously focussed on aligning CPI with target
--RBI Das: Inflation on declining path, though some distance to cover
--RBI Das: Headline CPI on downward trajectory
--RBI Das: Moderation in CPI to reverse in Sep
--RBI Das: CPI to remain elevated in near term due to base effects
--RBI Das: Sep CPI expected to see a big jump due to unfavourable base
--RBI Das: Sept CPI seen rising on shortfall in onion, tomato output
--RBI Das: Good kharif harvest, rabi season crop to pull down CPI in Jan-Mar
--RBI Das: CPI to moderate Jan-Mar on robust kharif sowing
--RBI Das: Food inflation could ease later in financial year
--RBI Das: Adverse weather continues to pose risk to food inflation
--RBI Das: Core inflation appears to have bottomed out
--RBI Das: Core inflation likely to remain broadly contained
--RBI Das: Core inflation likely subdued due to past monetary policy steps
--RBI Das: Inflation targeting a major structural reform
--RBI Das: Inflation targeting framework has matured over the years
--RBI Das: Flexible inflation targeting has served us well over the years
--RBI Das: Inflation targeting framework has proved its mettle
--RBI Das: Significant risks to reaching CPI aim from commodity prices
--RBI Das: Significant risk to inflation from weather, geopolitical factors
--RBI Das: Crude oil prices have become volatile in Oct
--RBI Das: Optimism on food inflation subject to weather related shocks
--RBI Das: Greater confidence in navigating last mile of disinflation
--RBI Das: Current inflation-growth balance created conditions for stance change
--RBI Das: Expected inflation-growth balance created conditions for stance change
--RBI Das: Current, expected CPI-growth balance made room for stance change
--RBI Das: See considerable divergence in food sub-groups for inflation
--RBI Das: Inflation horse brought to the stable
--RBI Das: Taken much effort to bring inflation horse back to stable
--RBI Das: Must keep inflation horse on tight leash so we don't lose control
--RBI Das: Need to hold inflation horse on tight leash 
--RBI Das: Oct CPI to remain high, around 5% 
--RBI Das on inflation: There's a risk of the horse running from the stable 
--RBI Das: See moderation in CPI inflation post Oct-Dec 
--RBI Das: Now have greater confidence that CPI moderating 
--RBI Das: Monsoon has been good, expectation of good rabi crop also strong 
--RBI Das: Expectation of good rabi output fairly strong 
--RBI report: See FY26 CPI inflation at 4.1%
--RBI report: See CPI inflation in range of 3.7-4.3% in FY26
--RBI report: See FY26 Jan-Mar CPI inflation at 4.1%
--RBI report: See FY26 Apr-Jun CPI inflation at 4.3%
--RBI report: See FY26 Jul-Sept CPI inflation at 3.7%
--RBI report: See FY26 Oct-Dec CPI inflation at 4.2%

 

NEW DELHI – The Reserve Bank of India on Wednesday retained its CPI inflation forecast for 2024-25 (Apr-Mar) at 4.5%, with inflation set to cool down to 4.1% in FY26. The retention in the forecast for the current financial year comes after headline retail inflation finally fell below the central bank’s medium-term target of 4.00% in July after a gap of nearly five years.

 

"Headline inflation is on a downward trajectory, though its pace has been slow and uneven," RBI Governor Shaktikanta Das said on Wednesday at the conclusion of the Monetary Policy Committee's three-day meeting. At the meeting, the MPC decided to keep the repo rate unchanged at 6.50%, but changed its stance to 'neutral' from 'accommodative' in order "to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth."

 

"The prevailing and expected inflation-growth balance have created congenial conditions for a change in monetary policy stance to neutral," Das said. The quarterly break-up of the central bank's latest inflation forecasts is as follows: 4.1% for Jul-Sept, 4.8% for Oct-Dec, and 4.2% for Jan-Mar. It had previously predicted that inflation in the final three quarters of FY25 would likely average 4.4%, 4.7%, and 4.3%, respectively. 

 

The revised forecast for Jul-Sept implies the RBI sees inflation in September--data for which will be released on Monday--rising to 5.0-5.1%, having averaged 3.6% in Jul-Aug. An Informist poll showed that the headline inflation rate is seen at 5.1% in September--the joint-highest in 2024. "Going forward, the moderation in headline inflation is expected to reverse in September and likely to remain elevated in the near term due to adverse base effects, among other factors," Das said. Later, at the post-policy press conference, he also said that inflation will likely be high in October as well, around 5%.

 

The higher September CPI print will be owing to lingering effects of a shortfall in the production of onion, potato and chana dal in FY24, among other factors, he said. Irrespective of the expected rise in inflation again, the governor said that it will sequentially moderate in Jan-Mar due to good kharif harvest, ample buffer stocks of cereals and a likely good crop in the ensuing rabi season. 

 

Though for the near to medium term, he said unexpected weather events and worsening of geopolitical conflicts constitute major upside risks to inflation. Further, Das said that if the recent uptick in food and metal prices, as seen in the Food and Agricultural Organisation and the World Bank price indices for September, sustains, it can add to the upside risks.

 

Food prices have been at the heart of the central bank's inflation management issues. According to economists, the Consumer Food Price Index, which fell 0.4% on month in August, could inch up in September. In fact, the fall in inflation in August – at 3.65% - was simply owing to a base effect, and food inflation in August was 5.66%.

 

Despite the near-term upsides to inflation from food prices, the evolving domestic price situation signals moderation in headline inflation thereafter, he said. Though he limited his commentary on food inflation risks, he signalled continuous caution and pessimism. "The agricultural crop outlook is turning out to be favourable, with improving prospects of kharif and rabi output. These factors could lead to an easing of food inflation pressures, but this optimism is subject to weather-related shocks, if any," he said.

 

For the first quarter of FY26, CPI inflation is seen averaging 4.3%, down from 4.4% projected in August, the RBI said on Wednesday. Going by the current projections, inflation continues to be above the central bank's target in FY26 as well, though in one quarter – Jul-Sept of FY26 – it is projected to be lower than the 4% target. As per the Monetary Policy Report, the quarterly break-up of inflation forecasts is as follows: 4.3% for Apr-Jun, 3.7% for Jul-Sept, 4.2% for Oct-Dec, and 4.1% for Jan-Mar.

 

The governor has mentioned time and again that the central bank is now in the process of last-mile disinflation, which he had earlier called a "challenge". On Wednesday, he said that even if there is greater confidence in navigating the last mile of disinflation, "significant risks – I repeat significant risks – to inflation from adverse weather events, accentuating geopolitical conflicts and the very recent increase in certain commodity prices continue to stare at us."

 

It is pertinent to mention that international crude oil prices – which were continuously falling until the second half of September – inched up again in the latter half of the month. Brent crude oil prices had fallen below $70 per barrel in September, the lowest since December 2021. The reversal in crude oil prices comes against the backdrop of two geopolitical conflicts--Russia-Ukraine and Israel-Iran--that pose significant risks to the global economy. "The adverse impact of these risks cannot be underestimated," he said. Crude prices – currently at $77-$78 per barrel – have become volatile in October, he added.

 

On core inflation, Das said that it was likely to remain broadly contained, likely due to past monetary policy steps unless, of course, there are surprises in global commodity prices. Core inflation, which strips out fuel and food items, remained at 3.4% for the second consecutive month in August. In July, core inflation had risen for the first time in 20 months because of an increase in telecom tariffs. 

 

After 'elephant', Das on Wednesday used the metaphor 'horse' for inflation. He said that with a lot of effort, the inflation horse was brought to the stable, or closer to the target within the tolerance band, compared to its heightened levels two years ago. "We have to be very careful about opening the gate as the horse may simply bolt again. We must keep the horse under a tight leash, so that we do not lose control." 

 

Going forward, Das said that the central bank will need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses. 

 

The RBI's current inflation targeting framework – introduced in October 2016 – has been a major structural reform and has served the central bank well, he said, as it marked the completion of eight years of its adoption. "Over the years, the framework has matured across various interest rate cycles and monetary policy stances," he said.  End

 

US$1 = INR 83.96

 

Reported by Priyasmita Dutta

Edited by Namrata Rao

 

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