With Q2 inflation at 4.4%, Q3 inflation at 4.7%, Q4 inflation at 4.3%, and Q1FY26 inflation at 4.4%, the Reserve Bank of India (RBI) kept its 4.5% inflation forecast for FY2025. Shakti Kanta Das, the governor of the RBI, stated today that the risks are evenly distributed. According to Das, stronger than anticipated inflation caused the headline rate to stop at 5.1% in June 2024.
For a tenth straight month, both fuel and food inflation continued to decline. The months of May and June saw a historic low for core inflation. In May and June, over 75 percent of headline inflation was caused by food inflation, which accounts for about 46 percent of the consumer price index (CPI) basket’s weight.
No Shift In Food Price
In June, the price of vegetables rose rapidly, accounting for almost 35% of inflation; severe inflation pressures continued to be felt on other important food categories. Although unevenly, headline inflation has decreased since its high. In July, the momentum behind food prices has not decreased.
Even though there are significant favorable base effects in Q2:2024–2025, the CPI headline inflation is likely to drop more shallowly due to the price momentum’s greater rise than anticipated. As the favorable base effects fade, inflation is predicted to slightly increase in Q3, according to Shakti Kanta Das.
However, Das emphasized that core inflation is still broadly easing, with core services inflation in the current CPI series reaching a new low in the months of May and June.
Inflation Supports Growth
“Growth is resilient, overall macroeconomic conditions are steady, and inflation and growth are evolving in a balanced way within the current monetary policy framework. The trend of inflation has been declining, and we are getting closer to establishing price stability.
However, there is greater opposition to this goal, and the progress we have made has been uneven because of significant and ongoing supply side shocks, particularly with regard to food goods. As a result, we must continue to exercise caution to guarantee that inflation supports growth while steadily approaching the target. According to RBI Governor, “This approach would be net positive for sustained a lot.”
According to Das, the Monetary Policy Committee (MPC) has voted by a majority to maintain the policy repo rate at 6.5% following a thorough evaluation of the macroeconomic and financial conditions that are unfolding as well as the overall outlook.
As a result, the bank rate is 6.75%, the marginal standing facility rate is at 6.25%, and the standing deposit facility rate stays at 6.25%. By a vote of four out of six members, the MPC also resolved to keep concentrating on removing accommodation in order to guarantee that inflation gradually approaches the objective while promoting growth.
