RBI raises retail inflation estimate for FY25 to 4.8% amid rising food prices

The Reserve Bank of India (RBI) has revised its retail inflation forecast for FY25, raising it to 4.8% from the previous estimate of 4.5%. This adjustment comes amid persistent food price inflation, which is expected to remain elevated in the short term. The RBI has also maintained its stance on key interest rates, leaving the repo rate unchanged at 6.5% during its December 2024 Monetary Policy Committee (MPC) meeting.

Inflation Expectations and Food Price Pressures

The central bank has projected that inflation will peak at 5.7% in the October-December quarter of FY24, with a slight decrease to 4.5% in the final quarter. Despite this expected moderation, food prices are anticipated to keep inflationary pressures high. These elevated food prices, combined with a challenging growth outlook, have contributed to the upward revision in the inflation forecast for the current fiscal year.

The RBI’s outlook for inflation in FY26 indicates a gradual decline, with projections of 4.6% in the first quarter and 4% in the second quarter, suggesting that inflationary pressures may ease in the medium term. However, near-term inflation remains a concern due to global and domestic factors impacting food supply and demand.

GDP Growth Projection Downgraded

Alongside the inflation forecast, the RBI has downgraded its GDP growth estimate for FY25, reducing it from 7.2% to 6.6%. This downgrade reflects the ongoing challenges in the economy, including weaker-than-expected performance in key sectors and the rising cost of living. Despite the inflation concerns, the RBI’s decision to keep the repo rate unchanged indicates a cautious approach to supporting growth while managing inflation.

Outlook

While inflation pressures are expected to persist, the RBI is looking for relief in the coming months, with better prospects tied to improved agricultural production in the upcoming Rabi season. The bank will continue to monitor food price trends and global economic conditions to adjust its policies as needed.