Inflation Below Target Opens Door for RBI Easing
Retail inflation based on Consumer Price Index (CPI) has remained below 4 per cent since February, dipping to a six-year low of 2.82 per cent in May. Core inflation remains subdued, with overall inflation comfortably below the RBI's 4 per cent target.
This favorable inflation environment provides room for the central bank to sustain its easing cycle. The RBI has already cumulatively reduced the short-term benchmark lending rate (repo) by 100 basis points since February.
Finance Ministry Review: Key Economic Indicators
The finance ministry's monthly review report highlights that actual inflation in the first quarter came below RBI targets. The central bank has projected headline inflation at 3.4 per cent for the second quarter of the fiscal year.
Revenue sources remain buoyant despite tax cuts, continuing on a double-digit growth path. Both Union and state governments have maintained momentum in capital expenditure while adhering to fiscal consolidation goals.
Outlook on Fiscal Policy, Oil Prices & Growth
Global crude oil prices are expected to remain subdued following a larger-than-anticipated production hike by OPEC and its allies. They raised output by 5,48,000 barrels per day in August, adding to previous months' production increases.
The full fiscal year inflation rate appears likely to undershoot the central bank's expectation of 3.7 per cent. This economic environment supports continued policy accommodation.
What's Next for Rate Setting in India?
The next meeting of the RBI's rate-setting panel, the Monetary Policy Committee (MPC), is scheduled for August 4-6. The government has mandated the RBI to ensure inflation remains at 4 per cent with a margin of 2 per cent on either side.
With inflation comfortably below target and favorable global conditions, there appears to be room for further easing of interest rates by the Reserve Bank of India.
This report includes content sourced from Press Trust of India (PTI), edited for clarity and context.
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