CPI inflation projected at 5.4% for FY24, says RBI Governor Shaktikanta Das

The Reserve Bank of India has chosen to uphold its inflation forecast for the ongoing fiscal year at 5.4 per cent, notwithstanding concerns about rising food costs, fluctuations in crude oil expenditure, and the possibility of domestic economic expansion adding to inflationary pressures.

The central bank has also decided to keep the policy rate unchanged for the fifth time in a row as it maintains a tight vigil on inflation. "Headline inflation has receded from the highs of last year, it remains above target in many countries," Reserve Bank of India Governor Shaktikanta Das said.

Das disclosed the outcomes of the six-member Monetary Policy Committee (MPC) concerning the upcoming bi-monthly monetary policy on Friday. The RBI’s group commenced its three-day deliberation on Wednesday.

The Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 6.5 per cent. Also, Real GDP for 2023-24 is projected at 7 per cent.

"We do not wait for the house to catch fire and then act," Das added in relation to pre-emptive steps taken by banks and NBFCs.

"In view of the evolving growth-inflation trade-off, the MPC took the right call in holding the rates steady," said Dr Manoranjan Sharma, Chief Economist at Infomerics Ratings.

Also Read RBI MPC 2023 LIVE Updates

Repo Rate and CPI

The repo rate, short for the repurchase rate, is the rate at which a central bank (such as the Reserve Bank of India) lends money to commercial banks against government securities. It's a crucial tool used by central banks to control the money supply in the economy and manage inflation.

When the central bank lowers the repo rate, borrowing becomes cheaper for commercial banks, encouraging them to borrow more. This increased borrowing capacity often leads to more lending to consumers and businesses, stimulating economic activity. Conversely, raising the repo rate makes borrowing more expensive, which can help in curbing inflation but might slow down economic growth.

CPI stands for Consumer Price Index, which is a measure used to evaluate the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Essentially, CPI inflation reflects the fluctuation in prices for a range of everyday items such as food, housing, clothing, transportation, and more. It's a crucial indicator used to gauge changes in the cost of living and to understand inflationary trends affecting consumers.