MUMBAI: Inflation is expected to be well aligned to the Reserve Bank of India’s (RBI) target of 4% in the current financial year, helped by cooling crude oil prices, said governor Sanjay Malhotra in the minutes of monetary policy committee (MPC) meeting, which was released on Wednesday. With inflation easing, the monetary policy needs to support domestic demand to further increase the growth momentum, he said.
“Overall, favourable factors for the inflation outlook outweigh those with possible adverse impact and should drive further disinflation in the headline CPI. It is expected that inflation will be well aligned to the target during the current financial year,” said Malhotra.
The Consumer Price Index (CPI) inflation has shown a moderating trend in recent months, falling within the RBI’s target band of 2-6%. Retail inflation slipped to a more-than-five-year low of 3.34% in March, driven by moderation in food prices.
The MPC, which consists of three members of RBI and three external members, cut its key policy rate for a second consecutive time and changed its stance to accommodative from neutral on April 9. It also cut the GDP growth estimate for the current fiscal year to 6.5% from 6.7%.
“When consumer price inflation is decisively around its target rate of 4% and growth is still moderate and recovering, monetary policy needs to nurture domestic demand impulses to further increase the growth momentum,” said the governor.
RBI deputy governor M Rajeshwar Rao said that strong rural demand on brightened prospects for agriculture along with improving urban demand, and a resilient services sector bode well for the growth outlook. However, global headwinds pose downside risk to growth.
“Assessing the overall situation, we find that while inflation outlook remains benign, GDP growth could face a downward pressure. The recent waves of global uncertainty demand decisive policy support to growth,” said Rao.
RBI executive director and panel member Rajiv Ranjan said that keeping in mind the evolving growth-inflation outlook, the change of stance to accommodative is best at this juncture.
“This stance indicates that the direction of policy rates going forward would be either a status quo or further easing, considering the benign outlook for inflation for most of the year on the one hand and the formidable headwinds facing domestic growth from heightened global uncertainties on the other,” said Ranjan.
External member Nagesh Kumar said growth outlook for 2025-26 has been downgraded by 20 basis points from earlier projections. “The global uncertainty arising from the ongoing trade war is also likely to adversely affect FDI inflows and private capex,” he said. “In such times of such uncertainties, there is a greater need for stimulating private consumption and investments through fiscal and monetary policy to sustain the growth momentum.”
External member Ram Singh said inflation levels and volatility are expected to remain within the RBI’s comfort band. “The inflation outlook has improved decisively, and confidence in a durable alignment of headline inflation with the target of 4 % over a 12-month horizon has improved,” he said. “On the other hand, growth is still on a recovery path after an underwhelming performance in the first half of 2024-25.”
External member Saugata Bhattacharya said dominant balance of probability is that inflation in India is likely to remain moderate over FY26. Growth may come under pressure due to ongoing trade tariff tensions. “If the trade tariff actions are not significantly diluted – global trade and hence growth will slow down materially, likely spilling over into India via external channels, further decelerating India’s growth,” he said.
Source: The Financial Express
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