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RBI's Stance on Inflation: A Tight Leash Amid Rising Risks

  • 09 Oct 2024 12:41 PM
  • RBI, Inflation, FinancialYear2025

The Reserve Bank of India (RBI) is taking a cautious approach to inflation management following a slight rise in the latest inflation readings. During a policy address on Wednesday, RBI Governor Shaktikanta Das emphasized the need to keep inflation on a "tight leash" due to potential upside risks stemming from adverse weather conditions and ongoing geopolitical tensions.

In August, India's retail inflation, measured by the Consumer Price Index (CPI), edged up to 3.65%, from 3.54% in July, primarily driven by rising vegetable prices. Governor Das noted that while inflation moderation was expected, the outlook for September indicates a possible reversal, suggesting that inflation will likely remain elevated in the near term. He expressed optimism that core inflation has bottomed out, and food inflation pressures could ease due to favorable Kharif sowing conditions and adequate soil moisture.

The RBI is committed to a dual mandate: aligning inflation with its target while also supporting economic growth. Das stated that the current inflation trajectory has created favorable conditions for a shift in the bank's policy stance to "neutral." The RBI now projects CPI inflation at 4.5% for the financial year 2025, with specific forecasts of 4.1% in Q2, 4.8% in Q3, and 4.2% in Q4 of the current fiscal year.

In his remarks, Das likened managing inflation to keeping a horse stable, stressing the importance of caution. "We must keep the horse on a tight leash so we don't lose control," he stated, highlighting the delicate balance the RBI must maintain in its monetary policy.

The Monetary Policy Committee (MPC) voted to keep the benchmark repo rate unchanged for the tenth consecutive meeting, signaling its commitment to a careful approach while paving the way for potential rate cuts in the future. With rising inflation risks, the RBI remains vigilant, prioritizing stability in its monetary policy framework.