RBI Governor anticipates a decrease in inflation from September

According to RBI Governor Shaktikanta Das, inflation would drop in September as a result of decreased vegetable costs, a ban on exports of non-basmati rice, and lower domestic LPG cylinder pricing. The governor emphasised the actions taken by the administration to keep basic items available and affordable while speaking at Devi Ahilya University. Retail inflation soared to 7.44% in July, a 15-month high. 

Despite the current inflation level of 6.8%, Das expects it to moderate to 5.2% next year. He indicated that food inflation might not see a sustained easing in the third quarter. On the economic front, the Governor mentioned that the domestic economy is showing resilience due to strong demand, with private sector capital expenditure gaining ground. However, the transmission of the 250 basis point repo rate cut remains incomplete. 

The RBI’s Monetary Policy Committee (MPC) has unanimously decided to maintain the repo rate at 6.5%, with Das affirming that the MPC will remain vigilant of inflation and committed to aligning it with the targeted level.

The RBI’s forecast appears to strike a balance between maintaining growth and keeping inflation in check. This is particularly challenging given the current global economic landscape, high crude oil prices, and surging US bond yields. The RBI’s decision to maintain the repo rate unchanged at 6.5% may seem cautious but is a calculated move to allow the economy to adjust to the cumulative 250 basis point hike since May 2022 before making any drastic moves. 

It is promising that Das believes that starting in September, inflation will begin to decline. The RBI is keeping a close eye on inflation despite the fact that the inflation projection for August was revised upward to 5.4% due to rising prices for vegetables, grains, and pulses. The careful balancing act between growth and inflation requires the central bank to be vigilant in this area.