RBI retains FY24 CPI inflation forecast at 5.4%, sees it at 4% in Q2 FY25

While headline retail inflation eased to 4.87 percent in October, economists see it rising sharply to nearly 6 percent in November, data for which will be released on December 12.

The Reserve Bank of India (RBI) sees average Consumer Price Index (CPI) inflation falling to 4 percent in the second quarter of 2024-25, even as it retained the forecast for the current financial year and held the repo rate steady at 6.5 percent.

Announcing the Monetary Policy Committee's interest rate decision on December 8, Governor Shaktikanta Das said while progress had been made on lowering inflation, the 4 percent target was yet to be reached and monetary policy had to stay the course and remain "actively disinflationary" to ensure fuller transmission and anchoring of inflation expectations.

Also read: 4.87 percent in October

Headline retail inflation has been above the central bank's medium-term target of 4 percent for 49 consecutive months.

"Headline inflation continues to be volatile due to multiple supply side shocks which have become more frequent and intense. The trajectory of food inflation needs to be closely monitored. Intermittent vegetable price shocks could once again push up headline inflation in November and December," Das said in his address.

RBI CPI Forecast FY24

While monetary policy would look-through such one-off shocks, it would have to stay alert to the risk of such shocks becoming generalised and derailing the ongoing disinflation process, he added.

Also read: RBI MPC 2023 | Repo rate, LAF, CRR, and all the key terms de-jargoned

The quarterly break-up of the inflation forecasts is as follows:

>> October-December 2023 CPI inflation forecast retained at 5.6 percent.

>> January-March 2024 CPI inflation forecast retained at 5.2 percent.

>> April-June 2024 CPI inflation forecast retained at 5.2 percent.

>> July-September 2024 CPI inflation forecast pegged at 4 percent.

>> October-December 2024 CPI inflation forecast pegged at 4.7 percent.

The RBI's revised forecast comes days before CPI inflation data for November is released on December 12. While it fell to 4.87 percent in October, inflation is seen rising sharply in November to nearly 6 percent. Kaushik Das, Deutsche Bank's chief economist for India and South Asia, for instance, expects inflation at 5.78 percent due to an unfavourable base effect and jump in onion and tomato prices.

In its statement, the MPC , which left the repo rate unchanged at 6.5 percent for the fifth meeting in a row, also said that core disinflation has been steady, suggesting that the rate-setting panel's past rate hikes are having an impact.

"The MPC will carefully monitor any signs of generalisation of food price pressures which can fritter away the gains in easing of core inflation," the committee said, adding that it will "remain resolute in its commitment to aligning inflation to the target".