Mumbai: The Reserve Bank on Friday said food price uncertainties continue to weigh on the inflation trajectory going forward, even as it retained 4.5 per cent 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 per cent,” RBI Governor Shaktikanta Das said.
Although RBI retained the full year inflation projection, it tweaked the forecasts for the quarter.
RBI forecast April-June quarter inflation at 4.9 per cent and in September quarter at 3.8 per cent.
For December and March quarters, inflation is projected at 4.6 per cent and 4.7 per cent, respectively.
In his statement earlier in the day, the governor had said the RBI’s goal on inflation is in sight and had asked all not to lower the guard against
price rise.
Asked about the timeline, he said inflation is seen going down below the 4 per cent mark in a few quarters of FY25 but will be going back up.
Drawing from the elephant analogy on containing inflation he gave earlier in the day, Das said the “elephant moves at a slow pace” and the last mile is always challenging.
“We would like the elephant to return to the forest and stay there on a durable basis. We would like inflation to align with the target on a durable basis,” he added.
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 Rs 100 in cooking gas LPG prices to ease the financial burden on households.
Also, public sector oil retailers cut petrol and diesel prices by Rs 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 per cent 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 per cent, within a band of +/-2 per cent.
The retail inflation in February was 5.1 per cent, while inflation in the food basket was at 8.66 per cent.
For the 2023-24 fiscal, RBI has projected average retail inflation at 5.4 per cent.