Inflation remained key focus in RBI MPC meet in February, show minutes

Reserve Bank of India

The members of the Reserve Bank of India's (RBI) monetary policy committee (MPC) remained cautious on inflation prints due to uncertainty in food prices, according to the minutes of the MPC meeting released on February 22.

"Food price uncertainty remains a major source of volatility for headline inflation outlook. Growing geo-political tensions and supply chain disruptions due to new flash points also pose further risks to the inflation outlook," RBI Governor Shaktikanta Das said in the minutes of the February round of monetary policy review.

"Monetary policy must remain restrictive and maintain downward pressure on inflation while minimising the output costs of disinflation," said RBI deputy governor, Michael Debabrata Patra.

During February monetary policy review, RBI Governor Das said recurring food price shocks could interrupt the ongoing disinflation process, with risks that it could lead to de-anchoring of inflation expectations and generalisation of price pressures.

India's headline retail inflation rate decelerated to a three-month low of 5.10 percent in January due to easing food prices, according to data released by the Ministry of Statistics and Programme Implementation on February 12.

The Consumer Price Index (CPI) inflation print in December 2023 was 5.69 percent.

At 5.1 percent, the latest CPI inflation figure is as per expectations, with economists having predicted prices likely rose 5.09 percent year-on-year in the first month of 2024.

The decline in inflation in January was driven by weaker price momentum - indicated by the month-on-month change in prices - in food items, with the Consumer Food Price Index down 0.7 percent from December 2023.

Within food items, the price index for vegetables was down 4.2 percent month-on-month (MoM), while that of fruits was lower by 2.0 percent.

In February monetary policy, the RBI retained the key interest rate repo at 6.5 percent, signalling that the central bank's long battle against persistently high inflation is not over yet.

This is the sixth consecutive pause in the last year. Since the April monetary policy in 2023, the RBI has kept the repo rate unchanged at 6.5 percent, after raising it by 250 basis points (bps) in May 2022. This was after inflation showed signs of moderating. One basis point is one-hundredth of a percentage point.