RBI MPC policy meeting: What RBI Governor Shaktikanta Das said on inflation

The Reserve Bank of India on Thursday (August 10) decided to keep the policy rate unchanged for the third time in a row as it maintained a heightened vigil on inflation. The RBI Governor, Shaktikanta Das, announced that headline inflation reached a low of 4.3 per cent in May, rose in June, and will surge in July and August. The governor announced that the inflation forecast for fiscal FY24 has been revised upward from 5.1 per cent to 5.4 per cent due to vegetable price shocks.

While announcing the MPC decision, RBI Governor Das said that weather conditions and food prices need to be closely monitored. The governor added that the global economy continues to face extreme weather conditions like El Nino and inflation challenges.

"MPC has decided by a 5/6 majority to remain focused on the withdrawal of accommodation to ensure inflation progressively aligns with the target while supporting growth, the RBI Governor announced.

The RBI Governor noted that headline inflation rose in June and is expected to surge in July as well as August due to vegetable prices. However, vegetable price shocks may reverse quickly. Unveiling the bi-monthly monetary policy, Reserve Bank Governor Shaktikanta Das said domestic economic activity is maintaining resilience. He also said the recovery in kharif sowing and rural incomes, the buoyancy in services and consumer optimism should support household consumption. "Headwinds from weak global demand, volatility in global financial markets, geopolitical tensions and geoeconomic fragmentation, however, pose risks to the outlook," Das said.

On inflation, the governor said the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory. "This jump is, however, likely to correct with fresh market arrivals," he said, and added there has been significant improvement in the progress of the monsoon and kharif sowing in July. However, Das added the impact of the uneven rainfall distribution warrants careful monitoring.

In his MPC statement, the governor did not make any changes to the growth forecast numbers. "Taking all factors into account, GDP growth for 2023–24 is projected at 6.5 per cent, with Q1 at 8.0 per cent, Q2 at 6.5 per cent, Q3 at 6.0 per cent, and Q4 at 5.7 per cent, with risks evenly balanced," Das added.