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Informist, Wednesday, Apr. 9, 2025

 

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MONETARY POLICY STATEMENT
* Apr-Jun CPI inflation seen at 3.6% vs 4.5?rlier
* Jul-Sep CPI inflation seen at 3.9% vs 4.0?rlier
* Oct-Dec CPI inflation seen unchanged at 3.8%
* Jan-Mar CPI inflation seen 4.4% vs 4.2?rlier
* Greater confidence about durable alignment of inflation with target
* More confidence of durable alignment of headline CPI with 4%
* Sharper than expected food inflation fall given us comfort
* Outlook on food inflation has turned decisively positive
* Risks to inflation two-sided
* Tariff uncertainty may lead to pressure on rupee, imported inflation
* Upside risks to CPI include currency depreciation
* Upside risks to CPI include imported inflation
* Don't see high concern for India inflation from tariffs
* Crop estimates suggest durable decline in food inflation
* Falling crude prices augur well for inflation
* Cuts FY26 CPI inflation forecast to 4.0% from 4.2?rlier
* Risks to inflation forecasts are evenly balanced

MONETARY POLICY REPORT
* FY27 CPI inflation seen at 4.3% as per structural model estimates
* Jan-Mar 2027 CPI inflation seen at 4.3% as per structural model estimates
* US tariffs impact on India inflation outlook uncertain at the moment

 

NEW DELHI - The Reserve Bank of India on Wednesday slashed its headline inflation forecast for the quarter ending June by 90 basis points to 3.6%, while lowering the projection for 2025-26 (Apr-Mar) by 20 bps to 4.0%. While the central bank draws comfort from the "decisively positive" outlook for food inflation--which has been at the heart of the RBI's inflation management issues--Governor Sanjay Malhotra said that in the current economic scenario, risks to inflation are two-sided.

 

"On the upside, the uncertainties may lead to currency pressure and therefore, inflation pressure and on the down side, the slowdown in global growth could entail further softening in commodity and crude oil prices putting downward pressure on inflation," Malhotra said while presenting the first monetary policy statement for FY26. "Overall, while global trade and policy uncertainties shall impede growth, its impact on domestic inflation, while requiring us to be vigilant, is not expected to be of high concern," the governor said. 

 

His comments on rupee depreciation and imported inflation were in relation to the ongoing tariff war triggered by US President Donald Trump. 

Washington announced tariffs against all major trading partners, calling it a 'Liberation Day' for the US, wherein the country slapped a 26?justed tariff on imports from India even as bilateral trade talks continue. The reciprocal tariffs took effect earlier in the day.

 

The rupee slumped against the dollar Wednesday on low risk appetite and as banks rushed to purchase dollars on behalf of importers, who were wary of a further fall in the Indian unit. During the day, the rupee is seen moving in a range of 86.00-86.75 a dollar. 

 

On the domestic front, Malhotra said a sharp decline in inflation expectations for three months and one year ahead period would help anchor inflation expectations going ahead. Furthermore, the fall in crude oil prices augurs well for the inflation outlook.

 

This positive outlook on inflation nudged the RBI's Monetary Policy Committee to unanimously decide to lower the policy repo rate for the second consecutive time by 25 bps to 6.0%. The committee also unanimously voted to change the stance to "accomodative" from "neutral" in order to support growth.

 

According to an Informist poll of 11 economists, India's headline CPI inflation is likely to be unchanged in March from February's 3.6%, driven by a sharp fall in vegetable prices. The statistics ministry will release CPI data for March at 1600 IST on Tuesday. Headline CPI inflation dropped below 4.0% in February after a gap of five months, and is seen staying around the RBI's medium-term target for entire 2025 on the back of lower food prices and anchoring of inflation expectation. Notably, the central bank sees "decisive improvement" in inflation outlook and "greater confidence" in it durably aligning to its 4% medium-term target, with upper and lower bound at 2% and 6%, respectively. 

 

The quarterly break-up of the central bank's latest inflation forecasts is as follows: 3.6% for Apr-Jun, 3.9% for Jul-Sept, 3.8% for Oct-Dec, and 4.4% in Jan-Mar. It had previously forecast inflation in the second quarter of FY26 to average 4.0% and in the final quarter to be 4.2%. "The risks are evenly balanced," the RBI said.  

 

As per the Monetary Policy Report released Wednesday, the quarterly forecasts for inflation in FY27 are as follows: 4.5% in Apr-Jun, 4.3% in Jul-Sep, 4.4% in Oct-Dec and 4.3% in Jan-Mar. For FY27, it is projected to average 4.3%, "assuming a normal monsoon, and no further exogenous or policy shocks." The report, published bi-annually, added that the impact of US tariffs on India's inflation outlook is "uncertain at the moment."

 

On the food inflation front, the central bank's positive views are on the back of uncertainties regarding rabi crops abating considerably and the second advance estimates pointing to a record wheat production and higher production of key pulses over the last year. "Along with robust kharif arrivals, this is expected to set the stage for a durable softening of food inflation," Malhotra said. 

 

"Concerns on lingering global market uncertainties and recurrence of adverse weather-related supply disruptions, however, pose upside risks to the inflation trajectory," the central bank's top boss added.  End

 

US$1 = INR 86.61

 

Reported by Priyasmita Dutta

Edited by Vandana Hingorani

 

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