RBI revises inflation forecast for FY 2024-25, Governor Das says 'last mile' turning out prolonged

The last mile of global disinflation is turning out to be prolonged and arduous, RBI governor Shatikanta Das said on Friday.

Core inflation, though subdued, also saw a slight increase in October. Inflation is expected to average 5.7% in the current quarter before moderating to 4.5% in the next, according to the RBI.

“In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in Q3,” Das said, adding that a good rabi season will be crucial to alleviating food inflation.

Real GDP growth for fiscal 2024-25 is projected at 6.6%, with the third and fourth quarters expected to grow by 6.8% and 7.2%, respectively. For the first half of fiscal 2025-26, growth is forecast at 6.9% in Q1 and 7.3% in Q2, with risks remaining evenly balanced.

Das reiterated the need to safeguard the disinflationary progress achieved thus far despite recent inflationary pressures.

In a 4:2 majority decision, the Reserve Bank of India kept the policy repo rate unchanged at 6.5% after its latest Monetary Policy Committee (MPC) meeting, citing the need to balance inflation control with economic growth.

The MPC decided to continue with a 'neutral' policy stance.

Inflation surged to 6.2% in October due to food price increases but is expected to moderate in Q4 with seasonal vegetable price declines and kharif harvest arrivals.

To ease liquidity pressures, the RBI reduced the cash reserve ratio (CRR) to 4% from 4.5%, releasing ₹1.16 lakh crore for banks. The CRR is the percentage of a bank’s total deposits that it is required to maintain in liquid cash with the RBI. The CRR percentage is determined by the RBI from time to time. Banks do not get any interest on this amount.

Liquidity conditions remained in surplus in October and November, supported by higher government spending.

Globally, economic growth remains stable but sluggish, with geopolitical risks and trade policy uncertainties fueling market volatility. Domestically, weaker-than-expected GDP growth of 5.4% in Q2 FY2024-25 was offset by resilient services and improving agriculture, though industrial weakness tempered overall performance.

The government in October reconstituted the Reserve Bank's rate-setting panel -- Monetary Policy Committee (MPC). This was the second MPC meeting of the reconstituted panel with three newly appointed external members -- Ram Singh, Saugata Bhattacharya and Nagesh Kumar.