Governor Das, announcing the Monetary Policy decision, said that CPI inflation for FY25 has been projected at 4.5%. The Committee has maintained its figures from February.

Back in February, CPI inflation was projected at 5.4 per cent for 2023-24 with Q4 at 5.0 per cent.

Food inflation pressures accentuated in February; MPC remains vigilant towards upside risk of inflation, says RBI Governor.

High, persisting food inflation could unhinge anchoring of inflationary expectations, he added. 

Reserve Bank of India Governor Shaktikanta Das.
| Photo Credit: PTI

The Reserve Bank of India (RBI) on February 8 projected GDP growth for the next financial year at 7% on the back of improved household consumption and upturn in private capex cycle.

The real GDP growth is, however, lower than 7.3% estimated by the National Statistical Office (NSO) for the current 2023-24 fiscal aided by strong domestic economic activity and investments. The Indian economy grew 7.2% in 2022-23 fiscal.

In its Monetary Policy Statement, 2023-24, RBI Governor Shaktikanta Das said the recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25.

“Among the key drivers on the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates; and government’s continued thrust on capital expenditure,” Mr. Das said.

The improving outlook for global trade and rising integration in the global supply chain will support net external demand. The RBI flagged headwinds from geopolitical tensions, volatility in international financial markets and geo-economic fragmentation as risks to growth outlook.

“Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7% with Q1 (April-June) at 7.2%; Q2 at 6.8%; Q3 at 7% and Q4 at 6.9%. The risks are evenly balanced,” Mr. Das said.

To keep inflation within the targeted 4% (+/-2%) band, the RBI on February 8 retained benchmark interest rate or repo at 6.5%.

The interest rate setting monetary policy committee (MPC) also decided to remain focussed on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

“Global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year gone by. Inflation is edging down from multi-decade highs, with intermittent upticks,” Mr. Das said.

Mr. Das said rural demand in India continues to gather pace, urban consumption remains strong and investment cycle is gaining steam on the back of increased capex. Also, there are signs of revival in private investments.

Food inflation stood at around 10% in August.
| Photo Credit: SUSHIL KUMAR VERMA

India’s retail inflation is likely to have retreated below 6% in September after two months over the central bank’s tolerance threshold, thanks to cooling prices for most essential commodities and food items, barring pulses that are seeing a sustained uptick in market prices.

Bank of Baroda economists, who put out a monthly index on essential commodities’ prices, expect consumer price rise last month to have dropped to 5.7% from 6.8% in August and a 15-month high of 7.4% in July. Food inflation stood at around 10% in August.

The National Statistical Office will release the Consumer Price Index (CPI) numbers for September this Thursday. Last Friday, the Monetary Policy Committee of the Reserve Bank of India (RBI) revised its average inflation projections for the July to September quarter from 6.2% to 6.4%. The upgraded estimate implies that the RBI expects September’s retail inflation print to be between 4.9% and 5%.

“Broadly, price pressures assuaged in September, with the reversal of tomato, potato and onion prices being the primary driver. More importantly, the moderation in food prices is broad-based,” said Dipanwita Mazumdar, economist at Bank of Baroda (BoB), noting that the base effects from last September when inflation stood at 7.4% will also alleviate the headline inflation number to an extent.

Pulses play spoilsport

“The only spoilsport continue to be pulses,” she added, with prices of all varieties of dals clocking sharp sequential upticks in September. The bank reckoned that inflation in tur dal year-on-year, hardened to 31.5% last month from 27.3% in August, while moong dal prices rose 10.7% (from 9.2% in August) — their highest rates in 2023.

Rice prices remained sticky, rising 11.1% in September compared to 11% in August, while onion inflation is expected to have sped to 29.5% from 17.6% in the previous month.

The rise in the BoB Essential Commodity Index moderated to 2.9% in September from 6.3% in August, with 35% of the commodities seeing softening price momentum. On a month-on-month basis, the index was down 1.8% from a 0.7% uptick in August, with retail prices of 12 of 20 essential commodities dropping

In a report on food plate costs last week, Crisil Market Intelligence and Analytics estimated a 17% dip in the cost of vegetarian food in September from August levels, while non-vegetarian plates became 9% cheaper. The firm had cited lower tomato and LPG cylinder prices as the main factors for the price correction.

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 
| Photo Credit: The Hindu

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 

Announcing the bi-monthly monetary policy on Friday, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 6.5 per cent.

The Governor said the real GDP growth for 2023-24 is projected at 6.5%. The latest CPI inflation projection for 2023-24 is at 5.4%, the same as projected previously. Indian forex reserves stood at $586.9 billion as on September 29.

Mr. Das said inflation is likely to ease in September, and the MPC would remain watchful of inflation and remain resolute in aligning inflation to the targeted level. Near-term inflation to soften on lowering of vegetable price and reduction in cooking gas cylinder rate, he added.

Domestic economy exhibits resilience on the back of strong demand, the Governor added.

Private sector capex is gaining ground as suggested by production of capital goods, he said.

The transmission of 250 basis point repo rate cut is still incomplete, the RBI Governor said.

The indications are that food inflation may not see sustained easing in Q3, the Governor added.

RBI may have to consider open market operation with regard to G-secs to manage liquidity, Mr. Das said.

RBI also has decided to double the gold loan under the bullet payment scheme to ₹4 lakh for Urban Cooperative Banks. The Payment Infrastructure Development Fund scheme has been extended by two years to December 2025. Internal Ombudsman Scheme to be further fine-tuned to safeguard the interest of customers, the Governor said.

The government has mandated the RBI to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.

“In case of any shortfall in production of any crop, prices can increase at a faster rate and add to inflation.”
| Photo Credit: MOHD ARIF

The inflationary impact of the 5%–11% increase in the minimum support price (MSP) for farm produce will be an additional factor for the RBI’s Monetary Policy Committee (MPC) to consider in its ongoing bi-monthly policy review to be announced on Thursday.

The spillover effects on consumer food prices from higher assured remuneration to farmers will hinge on the government’s procurement strategy for foodgrains and prevailing market prices, but any production shortages could lead to higher prices, economists cautioned. 

For instance, the 7% increase in paddy MSP could lead to higher prices if the crop is not higher than last year’s output, said Bank of Baroda chief economist Madan Sabnavis, who termed the increases in MSP ‘quite aggressive’ relative to past increases, which had been in the 4% to 6% range.

“Procurement takes place for rice, whose inflation is already high at 11%,” noted Mr. Sabnavis. “So an increase of 7% will add to benchmark prices in the market. Similarly, jowar, bajra and maize are all running inflation of 13%-15% and hence, also run a risk of higher prices in case of crop failure in any part of the country,” he added.  

“In case of any shortfall in production of any crop, prices can increase at a faster rate and add to inflation. The crux will hence be the size of the crops this season,” he said, stressing that food prices are the major risk to inflation so the Reserve Bank of India will be cautious until there is more clarity on kharif crop prospects. 

State Bank of India economists said that the impact of higher MSPs on inflation “will be negligible” depending on the prices prevailing in the e-National Agriculture Market (e-NAM) as well as procurement levels. 

While procurement of cereals was primarily in terms of wheat and rice, the procurement of pulses was not much, noted SBI Group chief economic advisor Soumya Kanti Ghosh. Moreover, he pointed out that the average modal prices in e-NAM mandis were already higher than the MSP for some of the crops.