Considering rate cuts is premature given current inflation: RBI Governor

RBI Governor on rate cuts: Reserve Bank Governor Shaktikanta Das stated on Thursday that considering a change in the interest rate stance is premature given the current gap between inflation and the 4 per cent target.

"Given the gap between current inflation and the 4 per cent target, the question of changing the stance is quite premature," Das said in a recent media interview. “When we move towards a sustained 4 per cent CPI (retail inflation) is when we will have the confidence to consider a change in stance.”

Das noted that the inflation trajectory is progressing as expected but highlighted that achieving the final stretch towards 4 per cent will be the most challenging.

The Reserve Bank of India (RBI) has projected Consumer Price Index (CPI)-based retail inflation at 4.5 per cent, with quarter-wise projections of 4.9 per cent in Q1 (April-June), 3.8 per cent in Q2, 4.6 per cent in Q3, and 4.5 per cent in Q4, as per its June bi-monthly report.

The RBI is mandated to maintain inflation at 4 per cent, with a margin of 2 per cent on either side and primarily considers the CPI when formulating its monetary policy.

Das mentioned that while headline inflation softened during March-April, persistent food inflation pressures offset gains from disinflation in core areas and deflation in fuel groups. Despite some moderation, inflation in pulses and vegetables remained firmly in double digits, with vegetable prices experiencing a summer uptick after a shallow winter correction. Fuel deflation was primarily driven by LPG price cuts in early March.

Core inflation has softened for the 11th consecutive month since June 2023. Services inflation moderated to a historic low, and goods inflation remained contained.

Regarding GDP, Das noted that various growth drivers are playing their roles, with strong growth momentum from the fourth quarter of the last financial year continuing into the first quarter of the current fiscal year. 

The RBI's June policy revised the GDP growth projection for the current fiscal year to 7.2 per cent from 7 per cent, citing rising private consumption and a revival of rural demand. If this projection materialises, it will mark the fourth consecutive year of GDP growth at or above 7 per cent.

(With PTI inputs)