RBI MPC Meet: ‘RBI won’t budge until elephant returns to the forest’: RBI Guv Das

RBI MPC Outcome: first monetary policy meeting of financial year FY25 is over, and even though monetary policy meeting outcome was largely in line with expectations- if not forward guidance n one point that RBI Governor Shaktikanta Das succeeded in putting across was apex bank’s laser-focused approach and priority in bringing down inflation under its mid-term range of 4 per cent- as Consumer Price Index-based (CPI) inflation remained above medium-term target of 4 per cent for 53 months in a row.

apex bank’s firm commitment to bring inflation in RBI's tolerance band before taking any rate cut action is reflected in RBI governor’s statement in which he said, “Two years ago, when CPI inflation peaked at 7.8 per cent in April 2022, elephant in room was inflation. elephant has now gone out for a walk and appears to be returning to forest. We'd like elephant to return to forest and remain re durable. CPI inflation must continue to moderate and align with target on a durable basis. Till this is achieved, our task remains unfinished."

In a post-MPC presser, on being asked wher elephant has reached forest and is on way to reaching forest, Governor Das replied, “ Elephant moves at a slow pace, which means last mile of disinflation is always slow and sticky.”

“ MPC stated that policy decision was guided by its agenda of maintaining growth-inflation treoff. Whilst growth prospects remain strong, price stability needs to be achieved. Indian economy has demonstrated strong growth prospects in recent times. However, inflationary risks continue to remain on upside marked by elevated food inflation, and crude price volatility besides supply-side disruptions globally,” Amnish Aggarwal, He of Research at Prabhudas Lillher said. 

Elephant ( Inflation) on move

RBI in its bimonthly monetary policy meeting kept repo rate unchanged for seventh time at 6.50 per cent. growth and inflation forecast for FY25 were also kept unchanged at 7 per cent and 4.5 per cent respectively. Even though core inflation has moderated to its lowest levels, food and heline inflation is still a cause of worry for RBI- is broer message RBI sent through its media briefing. 

“ inflation has moderated. We are driving satisfaction with progress me on targeting inflation. But task is not yet finished,” Das said in a post-monetary policy meeting briefing held on Friday. Similarly, on growth front, RBI said Indian economy will grow at 7 per cent in FY25. 

Even Deputy Governor of RBI, Michael Patra also shed light on inflation and said that food inflation has been volatile. “Earlier it was cereals which were driving inflation, n vegetables, now its protein such as eggs and meats. y are short-duration spikes that give persistent pressure. We want re should not be any spillover.”Apurva Sheth, He of Market Perspectives & Research, SAMCO Securities said.

“RBI Won’t Budge till Elephant is Back in Forest. Inflation has come down significantly from ir 2022 highs of 7.79 per cent. However, elephant of inflation remains above ir comfort level of 4 per cent. With global and domestic growth being robust, re isn’t much of a chance of cutting rates any time soon,” Apurva Sheth, He of Market Perspectives & Research, SAMCO Securities ded. 

Upside Risks to Food Inflation

On being asked why apex bank did not revise inflation forecast, RBI governor Das said bank is keeping an eye on inflation and will take any final decision only after seeing impact of wear on food crops. India Meteorological Department (IMD) has forecast above-normal temperatures and heatwave days during summer season. Climate change has increased frequency and ferocity of wear shocks, posing challenges for monetary policy. 

“All se developments could impart upside risk to domestic food inflation trajectory and raise heline inflation by around 100 bps over baseline. On or hand, ample foodgrains buffer stocks and effective supply management could help ease food inflationary,” RBI Monetary Policy Report stated on Friday.

In dition, in a post-MPC press briefing, RBI governor Das said that harvesting is over as far as wheat crop is concerned. “Vegetable prices need to be watched going forward in next three months of Apri, May, June.

Growth Trajectory

“Domestic economic activity continues to expand at an accelerated pace, supported by fixed investment8 and improving global environment. second vance estimate (SAE) placed real GDP growth at 7.6 per cent for 2023-24, third successive year of 7 per cent or higher growth,” Das ded in his statement. 

RBI also explained what drove more than expected growth in various quarters of last fiscal year of FY24. apex bank pegged growth at 6.5 per cent for Q2, 6.0 per cent for Q3 and 5.7 per cent for Q4. “However, actual growth for Q2 turned out to be higher at 8.1 per cent led by sharper-than-expected expansion in gross fixed capital formation (GFCF). In Q3 also, actual growth at 8.4 per cent overshot projection due to than expected increase in GFCF and moderation in drag from net exports,” RBI explained. 

Rate Cuts After US Fed?

Anor important aspect that was raised during presser was wher apex bank was going to cut rates after US Fed. Clearing fog around this, Das replied, “I can’t give forward guidance on this. Even US or or countries DOT plots keep changing. So whatever rate action we are going to take is linked to evolving path of inflation.” He went on to d that India’s monetary policy is primarily guided by domestic circumstances and situations. “ We don’t follow steps of US Fed. We did a rate cut in 2019 and increased rate in 2022 and we preceded US Fed action.” Das opined.