RBI to maintain pause in June despite easing CPI print as food inflation risk remains, say economists

Reserve Bank of India

The Reserve Bank of India-led Monetary Policy Committee (MPC) is likely to keep interest rates unchanged in the upcoming monetary policy despite marginal easing in Consumer Price Index (CPI) inflation as food inflation risks remain, economists said.

“Going forward, food inflation risks continue to linger— on account of the seasonal summer impact as well as heat waves. This print is unlikely to move the needle on monetary policy in June with the RBI remaining watchful of both domestic and global risks,” said Sakshi Gupta, Economist at HDFC Bank.

Further, Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, expects much change to RBI’s narrative for now, as a prolonged pause in policy rates remains the base case.

India's headline retail inflation stayed largely unchanged at 4.83 percent in April, according to data released by the Ministry of Statistics and Programme Implementation on May 13.

The Consumer Price Index (CPI) inflation in March was at a 10-month low of 4.85 percent.

The inflation print for April is slightly above economists' expectations. A Moneycontrol survey pegged CPI at 4.80 percent.

In April monetary policy, the central bank kept repo rate unchanged at 6.50 percent for the seventh time in a row, in line with the market expectations, with its focus firmly on bringing inflation down.

In its first meeting of FY 25, the rate-setting panel left the stance unchanged as withdrawal of accommodation. The decisions were takes with a 5:1 majority.

Last month, minutes of the RBI published on April 19, showed that majority of RBI's MPC members expressed caution on upside risks to inflation, particularly emanating from uncertainties in food prices, at the panel's policy review.

"While low core inflation would further the disinflation process, concerns remain on food inflation outlook. We need to remain watchful on upside risks to inflation outlook from adverse climatic factors, supply side shocks and geopolitical events," said Rajiv Ranjan in RBI minutes.

Adding to this, RBI Deputy Governor Michael Debabrata Patra said recent inflation prints and high frequency data on salient food prices indicate that food inflation risks remain elevated.