The Reserve Bank of India (RBI) on Friday retained the inflation projection at 4.5 per cent for the current financial year but governor Shaktikanta Das stressed the need to remain vigilant on food prices due to the forecast of higher temperatures between April and June.
While the RBI governor cautioned about the impact of the reduction in fuel prices on inflation, he said the “elephant in the room has gone for a walk”.
“Two months ago the elephant in the room was inflation, and that elephant has now gone for a walk in the forest and we hope it remains there,” Das said while announcing the decisions of the Monetary Policy Committee.
Read: What RBI governor said on repo rate, inflation, GDP growth: Top points
The Monetary Policy Committee (MPC) kept benchmark policy interest rates unchanged for the seventh time in a row as warnings of a coming heat wave renewed fears of an inflation spike. The committee voted five-to-one to keep the benchmark repo rate at 6.5%. The panel also decided to retain its relatively hawkish policy stance of “withdrawal of accommodation.”
“Our effort is to ensure inflation aligns to target on a sustained basis,” Das said.
The RBI also said the country’s economy is expected to grow by 7% in the fiscal year 2025, unchanged from its earlier forecast.
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said the MPC decision to maintain the status quo on rates and stance was on expected lines.
“While low core inflation provides comfort, the uncertainty on food inflation remains a worry,” Reuters quoted Bhardwaj as saying.
“Further, the higher U.S. yields, higher oil prices and other commodities along with possible delay in Fed’s rate easing cycle will keep the MPC wary. Accordingly, we do not see much scope for any rate easing until the second quarter of FY25,” she added.
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