The Reserve Bank of India (RBI) has revised its FY25 retail inflation forecast, raising it to 4.8% from the previous estimate of 4.5%. This adjustment comes amid continued food inflation, which is expected to remain high in the short term. The RBI also maintained its stance on key interest rates, leaving the repo rate unchanged at 6.5% during its December 2024 Monetary Policy Committee (MPC) meeting.
Anticipating Inflation and Food Price Pressures
The central bank forecast inflation to reach 5.7% in the October-December quarter of FY24, with a slight decline to 4.5% in the final quarter. Despite this expected moderation, food prices are expected to keep inflationary pressure high. These high food prices, combined with a challenging growth outlook, contributed to the upward revision of the inflation forecast for the current fiscal year.
The RBI’s inflation outlook for FY26 shows a gradual decline, with projections of 4.6% in the first quarter and 4% in the second quarter, suggesting that inflationary pressures may ease in the medium term. However, near-term inflation remains a concern due to global and domestic factors affecting food supply and demand.
GDP Growth Slowed
Alongside the inflation forecast, the RBI lowered its GDP growth forecast for FY25, lowering it from 7.2% to 6.6%. The decline reflects ongoing challenges in the economy, including weaker-than-expected performance in key sectors and rising costs of living. Despite inflation concerns, the RBI’s decision to keep the repo rate unchanged reflects a cautious approach to support growth while controlling inflation.
Outlook
Although inflationary pressures are expected to persist, the RBI is looking at easing in the coming months, with better prospects coupled with improved agricultural production in the upcoming Rabi season. The Bank will continue to monitor food price trends and global economic conditions to adjust its policies as needed.
