The month of August was considered very important on the inflation front. All the experts’ eyes were only fixed on whether the inflation figures could be kept below 4 percent even in the month of August or not. When the inflation figures came in on September 12, the entire country seemed to be getting relief. The inflation figures have remained below 4 percent for two consecutive months. Now the most important question is whether inflation remains the “number one enemy” of the country. If not, will there be an interest rate cut by the MPC for October? Can the answer to this question be found by looking at the inflation data for the month of September? September will be a bigger test on the inflation front than August.
The journey on inflation continues
On Friday, the RBI Governor said something important on this matter. Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said that inflation has come down in India but we are yet to complete the journey. India’s retail inflation based on the Consumer Price Index (CPI) stood at 3.65 per cent in August. This is the second consecutive month when inflation remained below four per cent. The government has entrusted the RBI with the task of ensuring that inflation remains at four per cent, which can fluctuate up and down by another two per cent.
There is no risk in looking the other way
Shaktikanta Das, during his address at the Bretton Woods Committee’s ‘Forum on the Future of Finance 2024’ programme, said that inflation has come down from its peak of 7.8 per cent in April 2022 to a satisfactory level around the four per cent target, but there is still a need to bring inflation to a halt. The journey has to end and we cannot afford to look away. The RBI’s projections indicate that inflation will decline from 5.4 per cent in 2023-24 to 4.5 per cent in 2024-25 and 4.1 per cent in 2025-26.
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We will have to be careful with politics.
The Governor said global economic activity and trade have largely weathered downside risks but the last leg of inflation has proved challenging. This has also created risks to financial stability. Das said the pace of reduction in global inflation is slowing down, hence there is a need for caution while liberalising monetary policy. He said central banks should carefully manage monetary policy and the government should focus on supply-side measures. Das said market expectations for a rate cut are rising now and this is especially seen after the signals of policy change by the US Federal Reserve.
Will it take time to reduce EMI on loans?
As RBI Governor Shaktikanta Das has indicated with regard to policy, there seems to be no chance of the credit EMI being reduced in the coming months i.e. in the current financial year. The RBI’s focus at the moment seems to be on bringing down inflation and sustaining growth. Despite the second consecutive rate cut by the ECB and a possible cut by the Fed in the month of September, there is no chance of the RBI cutting interest rates in the months of October and December.
