Food inflation expected to ease by Q4 on better prospects of harvest: MPC Minutes

While inflation is expected to moderate, RBI Governor Shaktikanta Das said that there are 'significant risks' to the outlook.

India's food inflation expected to ease by Q4 of fiscal year 2024-25 on better kharif arrivals and rising prospects of a good rabi season, despite a significant pick-up in September inflation print, according to minutes of the Reserve Bank of India (RBI) monetary policy committee's latest meeting.

"Beyond the short-term, however, the outlook for food inflation is becoming more favourable with improvement in kharif and rabi season prospects. Core inflation, in absence of a major cost-push shock, is likely to remain contained on continuing transmission of past monetary policy actions. These considerations have resulted in inflation projection of 4.5 percent for 2024-25," said RBI Governor Shaktikanta Das in the minutes that was released on October 23.

India’s retail inflation rose to a nine-month high of 5.5 percent in September after remaining below 4 percent for the previous two months owing to higher food inflation, dimming hopes of a rate cut in December.

"Sowing of key kharif crops are higher than last year and the long-period average. Sufficient buffer stocks for cereals are available for ensuring food security. Adequate reservoir levels, the likelihood of a good winter and favorable soil moisture conditions augur well for the ensuing rabi
season, though adverse weather events remain a risk," the meeting minutes said.

"Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.5 percent with Q2 at 4.1 percent; Q3 at 4.8 percent; and Q4 at 4.2 percent. CPI inflation for Q1:2025-26 is projected at 4.3 percent. The risks are evenly balanced," it added.

Monetary policy committee external member Ram Singh said that going forward, the moderation in headline inflation can be unsteady in the near term due to adverse base effects. Food inflation is expected to moderate later this financial year because of strong kharif and rabi sowing on top of adequate buffer stocks. Adverse weather events, however, remain un-insurable risks to food inflation.

In October Monetary policy, the central bank had maintained the status quo on rate and changed stance to 'Neutral' from 'Withdrawal of Accommodation.'

RBI Governor Shaktikanta Das on October 18 said an interest rate cut at this stage will be 'premature, and very, very risky'.

"We are not behind the curve. Indian growth story remains intact. India is poised to growth at 7.2 percent. Growth is steady and resilient, inflation is moderating with certain risk, so a rate cut at this point will be premature and very, very risky," Das said during the fireside chat at the India Credit Forum event, organised in Mumbai by Bloomberg.

While inflation is expected to moderate, Governor Das said that there are 'significant risks' to the outlook.