The Reserve Bank of India (RBI) is facing challenges in combating sticky inflation, leading to a revised outlook on rate cuts. Despite some moderation in prices, the RBI projects CPI inflation to remain at 4.5% for the current fiscal year.
RBI’s Monetary Policy Announcement
- RBI Governor Shaktikanta Das highlighted the difficulty in achieving the 4% inflation target, especially due to persistent food inflation.
- Economists anticipate a cautious approach from the RBI, with a possible rate cut cycle of 75 – 100 basis points starting from December 2024.
Inflation Trends
- Headline CPI inflation slightly moderated to 4.8% in April 2024, but food inflation increased to 7.9%.
- The Monetary Policy Committee (MPC) is expected to remain cautious due to ongoing inflationary concerns, primarily driven by food prices.
Expert Analysis
- Rajani Sinha, Chief Economist at Care Ratings, attributes the challenge in meeting the inflation target to elevated food prices and rising global commodity prices.
- Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, suggests that the RBI may maintain a pause in the August policy meeting, with expectations of a shallow rate cut cycle starting from December.
Potential Risks
- Despite expectations of a good monsoon, monitoring its distribution is crucial for assessing its impact on food prices.
- While core inflation remains benign, the increase in food prices has contributed to headline inflation exceeding the RBI’s target.
Multiple Choice Questions (MCQs) with Answers:
- What is the projected CPI inflation rate for the current financial year according to the RBI?
- A) 4.8%
- B) 4.5%
- C) 5.1%
- D) 7.9%
- Answer: B) 4.5%
- When are economists anticipating the start of a rate cut cycle by the RBI?
- A) October 2024
- B) August 2024
- C) December 2024
- D) July 2024
- Answer: C) December 2024
- What is the primary concern driving inflation according to experts?
- A) Core inflation
- B) Rising global commodity prices
- C) Declining food prices
- D) Benign monsoon forecast
- Answer: B) Rising global commodity prices
- What is the key challenge highlighted by the RBI Governor regarding inflation?
- A) Achieving a 2% inflation target
- B) Tackling persistent food inflation
- C) Controlling core inflation
- D) Maintaining a shallow rate cut cycle
- Answer: B) Tackling persistent food inflation