RBI MPC Meet Outcome: RBI revises FY25 inflation forecast to 4.8%, Q3 and Q4 projections adjusted upwards

India's GDP growth for Q2 FY25 slowed to 5.4%, marking the lowest growth in two years, down from 8.1% in the same period last year.

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has revised its inflation forecast for FY25, increasing the Consumer Price Index (CPI) inflation projection to 4.8 percent, up from the earlier estimate of 4.5 percent. The RBI also revised its CPI inflation forecast for Q3FY25 to 5.7 percent, compared to the previous forecast of 4.8 percent. For Q4FY25, the CPI inflation forecast was updated to 4.5 percent, higher than the earlier estimate of 4.2 percent.  Q1FY26 CPI inflation projection revised higher to 4.6% Vs 4.3% earlier.

RBI Governor Shaktikanta Das said the goal is to adhere to the flexible inflation targeting framework while keeping the objective of growth in mind. The mandate given to the RBI is to maintain price stability while supporting economic growth. He also stated that the RBI's mandate is to maintain price stability while supporting growth. He noted that the last deflation phase is being prolonged across economies. Inflation surged above the upper tolerance of 6% in October 2024. He anticipates that food inflation pressure will persist into Q3FY25 but begin easing in Q4FY25. High inflation continues to reduce disposable income for consumers.

In October, India's retail inflation surged to a 14-month high of 6.21 percent year-on-year (YoY). This rise was primarily driven by food inflation, which reached a 15-month high of 10.9 percent YoY. Within the food category, vegetable prices saw a steep increase, hitting a 57-month high of 42 percent YoY, with tomatoes jumping by 161 percent, potatoes rising by 65 percent, and onions increasing by 52 percent YoY.

India's GDP growth for Q2 FY25 slowed to 5.4%, marking the lowest growth in two years, down from 8.1% in the same period last year. This figure also fell short of the Reserve Bank of India's projection of 7% for the quarter. The slowdown is primarily attributed to weak performance in the manufacturing and mining sectors.

In recent weeks, key leaders, including Chief Economic Adviser (CEA) V Anantha Nageswaran, Commerce Minister Piyush Goyal, and Finance Minister Nirmala Sitharaman, have called for easing borrowing costs to support businesses. However, the Reserve Bank of India (RBI) has focused on food inflation as a crucial factor in its monetary policy decisions. The CEA has suggested excluding food prices from the inflation basket, arguing that the central bank cannot control such variables. The RBI has not yet responded to this proposal.