RBI MPC meet: RBI raises inflation projection for FY24 to 5.4% amid price shocks from vegetables

RBI Monetary Policy Committee Meet 2023: The Reserve Bank of India's Monetary Policy Committee (MPC) has increased its CPI (consumer price index) inflation forecast for FY24 to 5.4 per cent from 5.1 per cent, Governor Shaktikanta Das said on Thursday.

For the second quarter, the RBI has projected the CPI inflation to be at 6.2 per cent, followed by 5.7 per cent in the third quarter and 5.2 percent in the fourth quarter. It further projected CPI inflation to be at 5.2 per cent for the first quarter of FY25.

"The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the near term," Das said.

He further added that vegetable prices may see a significant correction after a few months. "The prospects of Kharif crops have also brightened thanks to the improvement in progress of the monsoon. Uncertainties however remain on domestic food price outlook due to sudden weather events and possible El Nino conditions in August and beyond," Das noted.

It may be noted that the RBI had, after its meeting in June, lowered its inflation forecast for FY24 to 5.1 per cent from 5.4 per cent announced earlier. It said inflation for the first quarter (April-June) of this fiscal would be at 4.6 per cent, followed by 5.2 per cent for the second quarter (July-Sept), 5.4 per cent for the third quarter (Oct-Dec) and 5.2 per cent for the fourth quarter (Jan-March).

"Headline inflation projection for the second quarter has been revised up substantially primarily due to price shocks from vegetables. Given the likely short term nature of these shocks, monetary policy can look through high inflation caused by such shocks for some time," Das stated.

Meanwhile, the RBI MPC has kept the key policy repo rate unchanged at 6.5 per cent. This is the third meeting on the trot that the MPC decided to maintain the status quo on the repo rate. Moreover, Das in the Monetary Policy Committee meeting announcements on Thursday stated that GDP growth for 2023-24 is projected at 6.5 per cent.

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