RBI MPC Meeting: RBI inflation target projected at 4.5% in FY25

RBI Inflation targets: The RBI in the latest bimonthly monetary policy meeting kept the repo rate unchanged at 6.5 per cent, growth forecast at 7 per cent and inflation forecast at 4.5 per cent in the ongoing fiscal of FY25. RBI governor Shaktikanta Das while shedding light on the inflation target said, “Headline inflation softened to 5.1 per cent during January-February 2024, from 5.7 per cent in December. After correcting in January, food inflation edged up to 7.8 per cent in February primarily driven by vegetables, eggs, meat and fish.”

The RBI governor also cautioned for being vigilant about the food inflation, and said, “Going ahead, food price uncertainties will continue to weigh on the inflation outlook. An expected record rabi wheat production in 2023-24, however, will help contain cereal prices. Early indications of a normal monsoon also augur well for the kharif season.”

However, talking about targeting inflation, Das said, “Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns with the target on a durable basis. Till this is achieved, our task remains unfinished.”

Quarterly Inflation Targets

According to RBI, the consumer price index (CPI) inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent. The risks are evenly balanced. The RBI in the past few years has also remained hawkish, reiterating its commitment to bring down headline retail inflation to the MPC’s mid-term target of 4 per cent. The Consumer Price Index-based (CPI) inflation stood at 5.09 per cent in February, remaining above the medium-term target of 4 per cent for 53 months in a row.

Retail inflation was 4.9 per cent in October 2023, which went up to 5.7 per cent in December before easing to 5.09 per cent in February this year. In all these months, food inflation has been consistently higher than the headline retail inflation at 6.24 per cent in October, 8.7 per cent in December and 7.76 per cent in February.