Monday, 19 May, 2025
According to the minutes of its April meeting released on April 23, the MPC now sees a stronger likelihood of headline inflation aligning durably with its 4 percent target over the next 12 months.
Describing the current inflation environment as "benign," RBI Deputy Governor M. Rajeshwar Rao noted that food prices have continued to ease through April.
Retail inflation is set to remain comfortably within the Reserve Bank of India’s (RBI) target range over the coming year, buoyed by easing food prices and a softening of global crude oil rates, according to minutes from the Monetary Policy Committee’s (MPC) April meeting released on Tuesday, April 23.
Consumer Price Index (CPI) inflation dropped to 3.6 percent in February, down from 5.2 percent in December 2024. The decline was primarily driven by a seasonal dip in vegetable prices and continued deflation in fuel costs. Looking ahead, the MPC forecasts CPI inflation to average 4 percent for the 2025-26 fiscal year, with quarterly inflation expected to fluctuate between 3.6 percent and 4.4 percent.
Describing the current inflation environment as "benign," RBI Deputy Governor M. Rajeshwar Rao noted that food prices have continued to ease through April. He highlighted the steep fall in headline CPI in February as a positive development for the economy. The RBI, under Governor Malhotra’s leadership, had trimmed the benchmark repo rate by 25 basis points to 6 percent during its April 9 meeting, a move mirroring a similar rate cut implemented in February.
Source: Reserve Bank of India
With inflation falling below target and food prices cooling significantly, the Reserve Bank of India’s Monetary Policy Committee (MPC) signaled growing optimism about price stability, even as economic growth continues to recover in the face of global headwinds. According to the minutes of its April meeting released on April 23, the MPC now sees a stronger likelihood of headline inflation aligning durably with its 4 percent target over the next 12 months.
The Committee highlighted a “decisive improvement” in the inflation trajectory, largely underpinned by a sharp drop in food inflation. Despite this, it acknowledged that economic growth remains on a recovery path following a lackluster performance in the first half of the 2024-25 fiscal year, hampered by a volatile and uncertain global environment. While risks to growth are seen as broadly balanced, the MPC flagged persistent uncertainty due to recent global financial market turbulence. In light of these dynamics, the panel stressed the need to continue supporting growth.
In a unanimous decision, the MPC cut the policy repo rate by 25 basis points to 6% and shifted its monetary policy stance from 'neutral' to 'accommodative', a clear signal of its intent to bolster economic momentum. The Committee, however, underscored the importance of ongoing vigilance, stating that the rapidly evolving economic landscape would require continuous monitoring and reassessment.
Source: Ministry of Statistics and Programme Implementation
Sanjay Malhotra, Governor of the Reserve Bank of India said, “The global economic landscape remains in a state of flux amidst heightened trade and policy uncertainties, with attendant implications for economies across the world, posing complex challenges and trade-offs in policy making. The channels through which these global shocks could impact economies, particularly emerging market economies, include spillovers from global growth slowdown, elevated financial markets volatility and dented consumer and investor confidence. The Indian economy remains relatively less exposed and better placed to withstand such spillovers with its growth driven largely by domestic demand. Nevertheless, we are not immune to the aftershocks and ripple effects associated with global disturbances. There may also be some positive spin-off to the Indian economy from the likely softening of crude oil and commodity prices and relative tariff advantage.”
The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was last increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
Rajeshwar Rao, Deputy Governor of the RBI said, “Uncertainty is the key word dominating the discourse in the financial world at this juncture. The escalating trade tensions led by recent reciprocal tariff impositions impart greater uncertainty to the global as well as domestic growth outlook. The benign inflation outlook with headline CPI inflation for February 2025 falling sharply to 3.6 per cent - registered a decline for the fourth consecutive month. In terms of CPI food sub-groups, the deflationary pressures are broad based. The significant softening of headline inflation and greater confidence of a benign outlook, especially on food prices, signals a likely durable alignment of inflation with the target rate over 2025-26.”
Commenting on the rate cut, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “the MPC’s decision to ease repo rate by 25 bps and shift its stance to accommodative is in line with expectations. We note the increasing global turmoil and its spillovers to the Indian growth slowdown will necessitate the MPC for deeper rate cuts. We see scope for additional 75-100 bps of rate cuts in the year ahead, depending on the scale of global slowdown.”
The next meeting of the MPC is scheduled from June 4 to 6, 2025.
