Maintaining a vigilant approach towards the evolving inflation scenario and striving to achieve the target of 4% remains a top priority for the Reserve Bank of India (RBI), according to Governor Shaktikanta Das in his monetary policy statement on Thursday. Amidst uncertainties, the governor emphasized the importance of maintaining an unwavering focus, akin to ‘Arjuna’s eye’, on inflation.
While risks to near-term inflation have moderated to some extent, Governor Das highlighted that pressure persists in the second half of the year, necessitating careful observation and timely action. “Let me re-emphasize that headline inflation still remains above the target, and being within the tolerance band of 2-6% is not sufficient. As Mahatma Gandhi had said, ‘The ideal must not be lowered.’ The continuation of the stance of withdrawal of accommodation should be seen from this perspective,” stated Das, emphasizing the need to maintain a vigilant approach to inflation.
Looking ahead, the near-term inflation outlook appears more favorable compared to the April monetary policy committee meeting, as the recent rabi harvest has remained largely unaffected by adverse weather events. Governor Das also mentioned that the forecast of a normal south-west monsoon by the Indian Meteorological Department (IMD) bodes well for the kharif crops. However, uncertainties remain regarding the spatial and temporal distribution of the monsoon and the interplay between El Nino and the Indian Ocean Dipole.
Highlighting potential upside risks to inflation, Das cited geopolitical tensions, uncertainties surrounding the monsoon, international commodity prices (particularly sugar, rice, and crude oil), and volatility in global financial markets. These factors contribute to inflationary pressures. Taking these aspects into account and assuming a normal monsoon, the Consumer Price Index (CPI) inflation is projected at 5.1% for the fiscal year 2023-24, according to the RBI governor.
Governor Das also noted that domestic demand conditions continue to support growth, bolstered by improving household consumption and investment activity. Urban demand remains resilient, evident from indicators such as passenger vehicle sales, domestic air passenger traffic, and credit card outstanding, all of which have witnessed double-digit expansion in April compared to the previous year. Rural demand is also on a path to recovery, with robust growth observed in motorcycle and three-wheeler sales in April, while tractor sales remained subdued.
In conclusion, Governor Shaktikanta Das emphasized the importance of maintaining a watchful eye on inflation while also taking into account the positive indicators for domestic demand and growth. The RBI remains committed to its goal of achieving 4% inflation and will continue to monitor the evolving economic landscape to ensure stability and sustainable growth.
