The kind of austerity that the Reserve Bank of India was applying to reduce inflation for the last 28 months seems to have worked. Raising interest rates to a seven-year high from May 2022 to February 2023. After that, keeping the repo rate frozen for 9 consecutive times was not an easy task. The real purpose of keeping interest rates high was only to reduce inflation. What is surprising is that there was no change in the inflation estimate at the MPC meeting held in the month of August.
The RBI has kept the average inflation for the current financial year at 4.5 per cent, which is still within the RBI’s tolerance level, but above the target of 4 per cent. What is special is that the RBI estimated the inflation rate in the second quarter at 4.4 per cent. Now the most important question is whether the inflation problem has reduced in the country. Let us try to understand the RBI Governor’s statement made during the RBI MPC on inflation.
He said this about inflation.
On August 8, the RBI Governor announced the policy rate. The Reserve Bank was very cautious about inflation. On August 8, the RBI Governor said after the MPC meeting that the pressure on food inflation has been observed continuously. Which cannot be ignored at all. Even though the core inflation is low, food inflation is still visible. Due to high food inflation, there has been a huge increase in household inflation.
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Due to rising food inflation, efforts to bring down inflation have been hampered in the first quarter of the current financial year. He had said on Thursday last week that there is a possibility of an increase in rural consumption due to improved agricultural activity. Overall, the pace of inflation is also declining. Further softening is expected. Even after that, there is a need to be very cautious.
The RBI Governor had made this prediction
On the other hand, the RBI Governor had predicted in the MPC that some relief in retail inflation may be witnessed due to the rapid southwest monsoon. Sowing of Kharif crops has been going well. Due to price stability, growth is likely to remain intact. The domestic economy remains strong. Domestic consumption is expected to improve rural demand. This clearly means that the inflation rate may remain low in the coming months. Even after that, the RBI Governor seems to be on the verge of being cautious.
What is the challenge?
Now the biggest challenge is whether the inflation rate in the country will remain at 4 percent. The answer to this question is very difficult because whenever it was estimated or seen in the data that the inflation rate would remain low, subsequently a rise in the inflation numbers was seen. The RBI will take any decision regarding monetary policy only when the inflation rate in the country remains at 4 percent or below for 3 consecutive months. Which is a very challenging task. The inflation data for the months of August and September will be very important for the RBI. There will be a policy meeting in the month of October. In which the RBI may change its estimated inflation numbers.
What are the estimated inflation figures?
There was no change in the estimated inflation rates at the MPC meeting held in the month of August. The RBI’s estimated inflation figure for the second quarter is 4.4 per cent. While in the third quarter this figure will rise to 4.7 per cent. While the estimated inflation figure for the fourth quarter remained at 4.3 per cent. While the estimated figure for the first quarter of FY2026 remained at 4.4 per cent. In the current financial year, inflation in the country may average 4.5 per cent.
