The Reserve Bank of India (RBI) has decided to keep its inflation projection for the current fiscal year steady at 5.4%. This decision comes despite concerns about rising food prices, uncertainties regarding crude oil costs, and the potential for domestic economic growth to drive up demand and inflation.
Governor Shaktikanta Das, while announcing the policy decisions, noted the continued volatility in food prices, which has been a significant factor affecting the inflation trajectory. The RBI expects inflation to remain at 5% for the quarter ending March 31.
Looking ahead, the forecast for fiscal 2025 stands at 4.5%, with inflation rates projected to be 5%, 4%, 4.6%, and 4.7% for the four quarters of the next fiscal year respectively.
In December, India experienced a spike in inflation, largely driven by increased food expenses, surpassing the 4% target. However, core inflation, which excludes food and fuel costs, dropped below 4% for the first time in four years, providing some relief for policymakers.
Analysts anticipate the RBI to closely monitor prices, particularly food inflation, and continue its efforts to align headline inflation with the 4% target. Despite Governor Das's previous reluctance to consider rate cuts until inflation stabilizes, economists remain hopeful for a reduction in the coming months, especially with expectations of easing inflationary pressures and potential rate cuts by the US Federal Reserve.
Governor Das has reiterated the RBI's commitment to achieving a 4% inflation target. However, he has also emphasized that policy decisions take into account various factors beyond inflation alone, acknowledging the vulnerability of headline inflation to external and domestic shocks.
India's policymakers have implemented measures to control inflation through both monetary and fiscal interventions, including export restrictions on certain commodities like wheat, sugar, and rice varieties. Additionally, efforts to combat hoarding and extend low import duties on edible oils have been undertaken to stabilize prices.
Finance Minister Nirmala Sitharaman informed the Lok Sabha about the government's efforts to manage inflation, noting that retail inflation has stabilized within the tolerance band due to these measures, particularly in perishable commodities.