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Home  » Business » Inflation seen closer to target in FY26: RBI report

Inflation seen closer to target in FY26: RBI report

By Manojit Saha
May 22, 2024 21:47 IST
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The Reserve Bank of India’s (RBI’s) state of the economy report observed that any durable alignment of headline retail inflation with the target of 4 per cent could recommence in the second half of FY25 and sustain until numbers closer to the target are seen during the course of FY26, dashing hopes of any reduction in the policy repo rate in the current financial year.

Inflation

Illustration: Uttam Ghosh/Rediff.com

The report, authored by RBI staffers, including Deputy Gove­rnor in charge of monetary policy Michael Patra, said though headline numbers may fall in July and August due to base effect, it is likely to reverse in September.

 

“A modest easing of headline inflation in the reading for April 2024 confirmed our expectation that an uneven pace of alignment with the target is underway,” said the report, which does not represent the views of the central bank.

The RBI has projected consumer price index (CPI) inflation of 4.5 per cent in FY25, with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent.

“The prices of vegetables, cereals, pulses, meat, and fish in the food category may keep the headline elevated and closer to 5 per cent in the near term, in line with projections set out in the April monetary policy committee (MPC) resolution, in spite of deflation in fuel prices and further softening of core inflation to a new historic low,” it said.

Headline inflation moderated to 4.8 per cent in April 2024 from 4.9 per cent in March as a positive momentum of 48 basis points (bps) was more than offset by a favourable base effect of 51 bps.

The six-member MPC has maintained the status quo in the rates since April 2023 after raising the repo rate by 250 bps between May 2022 and February 2023.

April core inflation eased further to 3.2 per cent year-on-year (Y-o-Y) in April from 3.3 per cent in March, the lowest in the current CPI series.

The central bank has emphasised getting inflation to the target of 4 per cent on a sustainable basis.

The report also said there is growing optimism about India globally, and that “India is on the cusp of a long-awaited economic take-off even if the outlook for the global economy is turning fragile as the descent of inflation is stalling, which reignited risks to global financial stability”.

“While revising India’s gross domestic product (GDP) growth upwards by close to 2 percentage points for FY24, the International Monetary Fund’s (IMF) April 2024 World Economic Outlook (WEO) alludes to the robustness of growth expected in 2024 and 2025 as reflecting continuing strength in domestic demand and a rising working-age population,” the report said.

The report also noted that emerging market central banks are on a gold-buying spree amid heightened global uncertainty.

Emerging market central banks added 290 tonnes in the first quarter of 2024, accounting for a quarter of overall global gold demand.

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Manojit Saha
Source: source
 

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