Mumbai, Apr 5 : The Reserve Bank stated on Friday that uncertainties in food prices continue to influence the inflation trajectory, even as it maintained a retail inflation projection of 4.5 percent for the current fiscal year.
In its first bi-monthly monetary policy for the current fiscal, the RBI highlighted that despite the reduction in petrol and diesel prices in mid-March 2024, the recent rise in crude oil prices requires close monitoring. Ongoing geopolitical tensions also pose upward risks to commodity prices and supply chains, according to the RBI.
“Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 percent,” stated RBI Governor Shaktikanta Das.
Although the RBI retained the full-year inflation projection, it adjusted the forecasts for the quarter. The RBI anticipates April-June quarter inflation at 4.9 percent and 3.8 percent in the September quarter. For the December and March quarters, inflation is projected at 4.6 percent and 4.7 percent, respectively.
The RBI noted that deflation in fuel is likely to intensify in the near term following the reduction in LPG prices in March. Last month, the government announced a significant cut of Rs 100 in cooking gas LPG prices to alleviate the financial burden on households. Additionally, public sector oil retailers reduced petrol and diesel prices by Rs 2 per liter, ending a nearly two-year-long hiatus in rate revisions.
“Food price uncertainties continue to weigh on the inflation trajectory going forward. A record rabi wheat production would help temper price pressure and replenish the buffer stocks. Moreover, early indications of a normal monsoon augur well for the kharif season,” the RBI remarked.
While inflation has significantly decreased, it remains above the 4 percent target. Food inflation continues to exhibit considerable volatility, hindering the ongoing disinflation process.
“Our ongoing effort is to ensure fuller transmission of policy actions and anchoring of household inflation expectations. The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability,” the RBI stated.
The RBI is mandated to contain retail or consumer price index (CPI) inflation at 4 percent, within a band of +/-2 percent.
Governor Das emphasized the need for CPI inflation to continue moderating and aligning with the target on a durable basis for the economy’s best interest. In February, retail inflation stood at 5.1 percent, while inflation in the food basket was at 8.66 percent. For the 2023-24 fiscal year, the RBI has projected average retail inflation at 5.4 percent.
