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Informist, Friday, Feb. 7, 2025

 

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* FY26 CPI inflation seen at 4.2%
* Retains FY25 CPI inflation forecast at 4.8%
* Cuts Jan-Mar CPI inflation forecast to 4.4% from 4.5?rlier
* Cuts Apr-Jun CPI inflation forecast to 4.5% from 4.6?rlier
* Retains Jul-Sept CPI inflation forecast at 4.0%
* Forecasts Oct-Dec 2025 CPI inflation at 3.8%
* Forecasts Jan-Mar 2026 CPI inflation at 4.2%
* MPC noted inflation has declined
* MPC noted inflation expected to further moderate FY26
* Food price pressures should see sequential softening
* Core inflation seen rising, but to remain moderate
* Flexible inflation targeting framework served India well
* Avg inflation lower since flexible inflation targeting adopted
* CPI has mostly stayed aligned with the target
* To use flexible inflation targeting to make best macro decision
* Strive to refine building of inflation targeting framework
* To develop more robust models to target inflation
* Progress of global disinflation is stalling
* RBI Malhotra on inflation: Like to be on top of everything
* RBI Malhotra: We want to do really well on inflation

 

NEW DELHI – The Reserve Bank of India on Friday lowered its headline inflation forecast for the current quarter ending March by 10 basis points to 4.4%, and projected inflation to average 4.2% in 2025-26 (Apr-Mar). "Going ahead, food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects," Governor Sanjay Malhotra said, while presenting his first monetary policy statement. 

 

The positive outlook on inflation nudged the RBI's Monetary Policy Committee to unanimously decide to lower the policy repo rate for the first time in nearly five years, bringing it to 6.25% from 6.50%. The committee also unanimously voted to retain the 'neutral' policy stance and "remain unambiguously focussed on durable alignment of inflation with the target while supporting growth," Malhotra said. 

 

At the press conference following the monetary policy meeting outcome, the governor said that the RBI Act has given a very clear mandate to the central bank's MPC--inflation management and price stability, keeping in view the growth objective. "So, we will continue to focus on that," he said. 

 

According to an Informist Poll of 12 economists, India's headline CPI inflation is likely to fall to a five-month low of 4.5% in January, driven by a sharp fall in vegetable prices. The statistics ministry will release CPI data for January at 1600 IST on Wednesday. CPI inflation was 5.22% in December and 5.10% in January 2024. As per data from the Department of Consumer Affairs, prices of tomato, onion, and potato were down 34.0%, 21.2%, and 16.1%, respectively, in January compared with December.

 

Apart from vegetable prices, economists also said that the economy will draw comfort from subdued core inflation, which has remained below 4% for 13 months in a row. Core inflation--which does not include food and fuel items, whose prices can be volatile--is seen inching up slightly in January to around 3.7% from 3.6% in December due to an increase in gold prices. "Core inflation is expected to rise but remain moderate," the central bank's top boss said.  

 

Food prices have been at the heart of the central bank's inflation management issues, and "it will ease in FY26", Malhotra assured. The quarterly break-up of the central bank's latest inflation forecasts is as follows: 4.4% for Jan-Mar, 4.5% for Apr-Jun, 4.0% for Jul-Sept, 3.8% for Oct-Dec, and 4.2% in Jan-Mar 2026. It had previously forecast that inflation in the final quarter of FY25 will average 4.5% and in the first quarter of FY26 at 4.6%. The RBI retained the FY25 CPI view at 4.8%. "The risks are evenly balanced," Malhotra said.

 

Notably, in Jul-Dec--the second half of 2025--the central bank sees inflation aligning to its 4% medium-term target, with upper and lower bounds at 6% and 2%, respectively. The governor also added that the central bank "wants to do really well on inflation" and "be on top of everything". By "everything", he meant durably aligning inflation with the 4% target while also supporting growth. 

 

While a rate cut, a softening inflation outlook, and a projected rebound in household consumption bring cheer to the economy, the central bank's commentary in the first monetary policy statement of 2025 was not all rosy. The governor said that continued uncertainty in global financial markets, coupled with volatility in energy prices and adverse weather events, presents upside risks to the inflation trajectory.

 

Over the past few years, volatile crude oil prices have complicated India's inflation outlook, and controlling it is critical owing to its ripples effect on other commodity prices. It has also called for the government to intervene with price-management measures. Brent crude oil prices have inched up sharply in January from its December levels. On Friday, it opened at $74.31. CareEdge Ratings said in a research report on Wednesday that it will be in the range of $75-$80 per barrel over the next six months. Going forward, Malhotra said that the monetary policy will "remain watchful".

 

INFLATION FRAMEWORK

Speaking about the RBI's current flexible inflation targeting framework, introduced in October 2016, Malhotra said that it has served India well. Following its implementation, the average inflation has gone down, he said, adding that "CPI inflation has mostly stayed aligned with the target, barring a few occasions of breaching the upper tolerance band since its inception."

 

Responding to the evolving growth-inflation dynamics, the governor said that the central bank will continue to improve the macroeconomic outcomes in the best interest of the economy using the flexibility embedded in the framework. 

 

A review of the framework was already done in 2021 and on Friday, the governor said that the RBI will "strive to further refine the building blocks of this framework by making advances in the use of new data, improving nowcasting and forecasting of key macroeconomic variables and developing more robust models."  End

 

Reported by Priyasmita Dutta

Edited by Deepshikha Bhardwaj and Akul Nishant Akhoury

 

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