The retail inflation in February was 5.1%, while inflation in the food basket was at 8.66%.

The Reserve Bank of India (RBI) on April 5 said food price uncertainties continue to weigh on the inflation trajectory going forward, even as it retained 4.5% retail inflation projection for the current fiscal.

In its first bi-monthly monetary policy for current fiscal, the RBI said notwithstanding the cut in petrol and diesel prices in mid-March 2024, the recent uptick in crude oil prices needs to be closely monitored.

“Continuing geopolitical tensions also pose upside risk to commodity prices and supply chains,” RBI said. “Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5%,” RBI governor Shaktikanta Das said.

RBI Monetary Policy updates | Policy repo rate unchanged at 6.5%; real GDP growth for FY25 projected at 7%

Although RBI retained the full year inflation projection, it tweaked the forecasts for the quarter. RBI forecast April-June quarter inflation at 4.9% and in September quarter at 3.8%.

For December and March quarters, inflation is projected at 4.6% and 4.7%, respectively. The RBI said that deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March.

The government last month announced a steep cut of ₹100 in cooking gas LPG prices to ease the financial burden on households. Also, public sector oil retailers cut petrol and diesel prices by ₹2/litre, ending a nearly two-year-long hiatus in rate revision.

“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 indication of a normal monsoon augurs well for the kharif season,” RBI said.

RBI said inflation has come down significantly but remains above the 4% target. Food inflation continues to exhibit considerable volatility impeding 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,” RBI said.

The RBI has the mandate to contain retail or consumer price index (CPI) inflation at 4%, within a band of +/-2%. Mr. Das said two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation.

“The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis.”

“In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished,” Mr. Das said.

The retail inflation in February was 5.1%, while inflation in the food basket was at 8.66%. For the 2023-24 fiscal, RBI has projected average retail inflation at 5.4%.

The spike in food prices has kept the Reserve Bank of India (RBI) worried even though overall inflation has moderated to a certain extent.

On April 5, the Central bank’s Monetary Policy Committee decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. This is the seventh time that the rates have been kept on hold.

“The Monetary Policy Committee (MPC) remains focused on aligning inflation to the target on a durable basis. We derive satisfaction from the progress made under disinflation. But the task is not yet finished,” RBI Governor Shaktikanta Das said at a press conference after the MPC meeting.

RBI Monetary Policy updates | Policy repo rate unchanged at 6.5%; real GDP growth for FY25 projected at 7%

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

Food price uncertainties

In his monetary policy statement, Mr. Das said, “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 indication of a normal monsoon augurs well for the kharif season.”

“International food prices also remain benign. The tight demand supply situation in certain categories of pulses and the production outcomes of key vegetables warrant close monitoring, given the forecast of above normal temperatures in the coming months,” he said.

“Frequent and overlapping adverse climate shocks pose key upside risks to the outlook on international and domestic food prices,” he said, adding that as per the Indian Mereological Department’s forecast, the months of April, May, and June will witness above normal maximum temperatures in most parts of the country. 

Volatile food inflation

Answering a question on what is fuelling food inflation, RBI Deputy Governor Michael D. Patra told The Hindu, “Food inflation has been highly volatile. In February 2024 it was 7.8% and the indications are that in view of adverse climate events recurring, it will remain high.”

“The actors keep shifting. Sometime it is cereals, then vegetables and currently it is protein which is eggs, meat and fish. There is some firmness in rice prices,” he said. “These are short duration spikes but since they occur on multiple occasions, they give a persistent character. So what we are worried about is that there should not be any spillover to the rest of the CPI. So we remain watchful, very closely.” Mr. Patra added.

Growth-inflation dynamics

Overall inflation has been controlled to a certain extent; since the last policy, the growth-inflation dynamics have played out favourably.

While growth has continued to sustain its momentum, surpassing all projections. headline inflation has eased to 5.1% during January and February 2024 from 5.7% in December 2023, with core inflation declining steadily over the past nine months to its lowest level in the series, Mr. Das said in his monetary policy statement.

He added that the fuel component of the CPI remained in deflation for six consecutive months; food inflation pressures, however, accentuated in February.

“Looking ahead, robust growth prospects provide the policy space to remain focused on inflation and ensure its descent to the target of 4%. As the uncertainties in food prices continue to pose challenges, the MPC remains vigilant to the upside risks to inflation that might derail the path of disinflation,” he said.

“Under these circumstances, monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission of the past actions. The MPC, therefore, decided to keep the policy rate unchanged at 6.50% in this meeting and remain focused on withdrawal of accommodation. The MPC will remain resolute in its commitment to aligning inflation to the target,” he added.

Fuel price deflation

Mr. Das said that cost push pressures faced by firms were seeing an upward bias after a period of sustained moderation.

“Deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March. Notwithstanding the cut in petrol and diesel prices in mid-March, the recent uptick in crude oil prices needs to be closely monitored. Continuing geo-political tensions also pose upside risk to commodity prices and supply chains,” he said.

Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5% with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5% . The risks are evenly balanced.

Growth prospects

Around this time two years ago, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation, Mr. Das said. “The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished,” he said.

On growth prospects, the Governor said that headwinds from geopolitical tensions, volatility in international financial markets, geoeconomic fragmentation, rising Red Sea disruptions, and extreme weather events pose risks to the outlook.

Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7%, with Q1 at 7.1%; Q2 at 6.9%; Q3 at 7%; and Q4 at 7%. The risks are evenly balanced.

The RBI and Bank Indonesia MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries. 
| Photo Credit: Reuters

The Reserve Bank of India (RBI) and the Bank Indonesia (BI) signed a Memorandum of Understanding (MoU) on March 7 in Mumbai for establishing a framework to promote the use of local currencies viz., the Indian Rupee (INR) and the Indonesian Rupiah (IDR) for cross-border transactions. The MoU was signed by the Reserve Bank of India governor Shaktikanta Das and the Bank Indonesia governor Perry Warjiyo.

The MoU on establishing a framework for cooperation in the area of cross-border transactions in local currencies between India and Indonesia, aims to promote the use of INR and IDR bilaterally.

The MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries.

This framework would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-IDR foreign exchange market.

“Use of local currencies would optimise costs and settlement time for transactions,” the RBI said in a statement.

“Use of local currencies in bilateral transactions will eventually contribute to promoting trade between India and Indonesia as well as deepen financial integration and strengthen the long historical, cultural and economic relations between India and Indonesia,” the statement added.

RBI governor Shaktikanta Das. File
| Photo Credit: ANI

With a view to strengthen customer grievance redressal system, RBI governor Shaktikanta Das on October 6 said the Central bank decided to effect certain changes and also consolidate and harmonise the Internal Ombudsman guidelines into a single master direction.

“This will further strengthen the customer grievance redressal system of the regulated entities,” Mr. Das said while announcing bi-monthly monetary policy.

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The Reserve Bank of India, in 2015, introduced an Internal Ombudsman (IO) mechanism in select scheduled commercial banks with the objective to strengthen their Internal Grievance Redress (IGR) system and to ensure efficient and fair resolution of customer complaints by enabling an apex level review within the banks before their rejection.

Gradually, the framework has been extended to other regulated entities (REs), viz. select Non-Bank System Participants (non-bank issuers of PPIs), select Non-Banking Financial Companies and all Credit Information Companies.

The guidelines on IO framework currently in operation for various categories of REs have similar design features but carry certain variations on operational matters. He said, “Based on the learnings from the implementation of the extant of IO guidelines, it has been decided to harmonise the same and issue a consolidated master direction.”

“The master direction shall bring uniformity in matters like timeline for escalation of complaints to IOs, exclusions, temporary absence of the Internal Ombudsman, minimum qualifications for appointing an Internal Ombudsman and updation of reporting formats, in addition to introduction of the post of Deputy Internal Ombudsman,” he added.

In view of the potential role of Self-Regulatory Organisations (SROs) in strengthening compliance culture among their members and also providing a consultative platform for policy making, he said, “it has been decided to issue an omnibus framework for recognising SROs for various regulated entities of the Reserve Bank.”

“The omnibus SRO framework would prescribe the broad objectives, functions, eligibility criteria, governance standards, etc., which will be common for all SROs, irrespective of the sector,” he said.

“The Reserve Bank may prescribe sector-specific additional conditions at the time of calling for applications for recognising such SROs,” he said. “To begin with,” he said, “a draft of the omnibus framework will be released for stakeholder comments.”