MUMBAI: The RBI‘s latest State of the Economy report warns that the long-term visibility of the 4% inflation goal does not necessarily imply scope for gradual easing as short-term risks of spikes in food prices need to be considered.
The report forecasts robust growth for the Indian economy, supported by lower input costs and increased corporate profits.Released almost a fortnight after the MPC meeting on December 8, the report predicts a decline in inflation to 4.6% in the first three-quarters of FY25, accompanied by easing global growth and a reduction in interest rates. It underscores inflation as a key risk to growth.
The anticipated drop in inflation during the first three quarters of 2024-25 to 4.6% is attributed to the resolution of supply-side issues and the diminishing impact of base effects.
An RBI article also said that the GDP growth of 7.7% in the first half of this fiscal has “left sceptics gasping and woefully behind the curve”. “The softer inflation prints for September and October 2023 and the prolonged pause in the stance of monetary policy have engendered a certain hypermetropia among some stakeholders – an irrational long-sightedness whereby inflation forecasts gravitating towards the 4% target sometime in the distant future are sighted clearly whereas high near-term risks of spikes in inflation outcomes on the back of food volatility are blurred,” states the report.
RBI governor Shaktikanta Das, on December 8, projected CPI inflation for Q1 2024-25 at 5.2%, Q2 at 4%, and Q3 at 4.7%. The forward guidance of 4.7% has led many to believe that inflation will remain within RBI’s comfort zone next year. Given the prevailing conditions, the report acknowledges a rising clamour for rate cuts or a commitment to a moderation path in the policy rate. It cautions that such views jeopardise the conduct of monetary policy and undermine the foundations of growth.
The report forecasts robust growth for the Indian economy, supported by lower input costs and increased corporate profits.Released almost a fortnight after the MPC meeting on December 8, the report predicts a decline in inflation to 4.6% in the first three-quarters of FY25, accompanied by easing global growth and a reduction in interest rates. It underscores inflation as a key risk to growth.
The anticipated drop in inflation during the first three quarters of 2024-25 to 4.6% is attributed to the resolution of supply-side issues and the diminishing impact of base effects.
An RBI article also said that the GDP growth of 7.7% in the first half of this fiscal has “left sceptics gasping and woefully behind the curve”. “The softer inflation prints for September and October 2023 and the prolonged pause in the stance of monetary policy have engendered a certain hypermetropia among some stakeholders – an irrational long-sightedness whereby inflation forecasts gravitating towards the 4% target sometime in the distant future are sighted clearly whereas high near-term risks of spikes in inflation outcomes on the back of food volatility are blurred,” states the report.
RBI governor Shaktikanta Das, on December 8, projected CPI inflation for Q1 2024-25 at 5.2%, Q2 at 4%, and Q3 at 4.7%. The forward guidance of 4.7% has led many to believe that inflation will remain within RBI’s comfort zone next year. Given the prevailing conditions, the report acknowledges a rising clamour for rate cuts or a commitment to a moderation path in the policy rate. It cautions that such views jeopardise the conduct of monetary policy and undermine the foundations of growth.
