RBI MPC retains FY25 inflation forecast at 4.5%

The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) maintained its inflation forecast for 2024-25 at 4.5% in its fourth bi-monthly policy decision of the year on October 9.

“CPI (Consumer Price Index) for September is expected to see a big jump due to unfavourable base effects and pick up in food price momentum. Unexpected weather events, worsening geopolitical conflicts also pose major upside risks to inflation,” RBI Governor Shaktikanta Das said in a media address after the 51st meeting of the MPC.

Recent uptick in food and metal prices as seen in FAO (Food and Agriculture Organisation of the United Nations) and World Bank price indices for September, if sustained, can also add to upside risks to CPI, he noted.

CPI Projection

Period	Current Forecast	Earlier Forecast
FY25	4.5%	4.5%
Q2	4.1%	4.4%
Q3	4.8%	4.7%
Q4	4.2%	4.3%
Q1 FY26	4.3%	4.4%

Economists expect India’s retail inflation to climb above 5% in September, driven by rising food prices, particularly vegetables, combined with the fading base effect.

Also Read: Live updates of RBI Monetary Policy

The Consumer Price Index (CPI) fell below 4% in July and August 2024, with the average retail inflation from April to August at 4.3%. However, food inflation is still running above 5%.

Experts suggest inflation could hover around 5% in the coming months, especially if extended monsoon conditions continue to push up vegetable prices.

“Given recent food price volatility, we expect the RBI to remain cautious, with a rate cut likely only in December once inflation shows consistent moderation,” Bank of Baroda economist Aditi Gupta told CNBC-TV18.

While oil prices are currently manageable, potential global shocks, such as a rise in commodity prices spurred by China’s stimulus efforts, could add further pressure.

MPC voted by 5:1 majority to keep policy repo rate–the rate at which RBI lends to banks–unchanged at 6.5% for the tenth consecutive time.

The MPC unanimously decided to change the policy stance to ‘neutral’ from ‘withdrawal of accommodation’.

A ‘neutral’ policy stance allows flexibility to adjust based on evolving economic conditions, while ‘withdrawal of accommodation’ involves gradually tightening policy to control inflation.

RBI also kept its GDP growth target for FY25 unchanged at 7.2%.