MPC Minutes | RBI governor says work on inflation is not over, warns against policy pivots

India's approach, according to Das, could be a guiding template for other economies in the future. He underscored the significance of price and financial stability as the bedrock for robust, sustainable, and inclusive growth. Das reiterated that the RBI's approach has been holistic, ensuring a balanced economy.

"Considering that price and financial stability are the foundations for strong, sustainable and inclusive growth, our endeavour all along has been to take a holistic approach to keep the economy in balance," Das noted.

Key economic indicators for India presented a positive outlook. The real GDP for 2023-24 is anticipated to grow at 7.3%, building on the 7.2% growth from the previous year.

Inflation, as measured by the Consumer Price Index (CPI), is projected to soften to 5.4% in 2023-24, down from 6.7% in the preceding year. Consumer confidence is on the rise, and business sentiments remain optimistic. Core inflation, excluding food and fuel, fell to a four-year low of 3.8%.

"CPI inflation has fallen decisively from the heightened levels of last summer, led by steady and sustained disinflation in core... Headline inflation rose from 4.9% in October to 5.7% in December, even as core inflation (CPI inflation excluding food and fuel) softened to a four-year low of 3.8%. Deflation in fuel has also deepened," said Das.

The RBI governor addressed the current challenges faced by India, such as food price volatility and potential disruptions in the supply chain due to geopolitical tensions. Despite these hurdles, Das was confident about India's economic resilience, driven by strong rural and urban demand, a healthy private capex cycle, and improving global conditions.

"Inflation is expected to soften further to an average of 4.5% in 2024-25 with a fleeting trough of 4% in Q2. Food price uncertainty remains a major source of volatility for the headline inflation outlook. Growing geopolitical tensions and supply chain disruptions due to new flash points also pose further risks to the inflation outlook," Das stated.

He cautioned against complacency, urging the continuation of the current monetary policy framework. He emphasised the importance of not underestimating the remaining task of achieving the 4% inflation target, given the potential for a "last mile" of sticky disinflation. He warned against premature policy pivots, which could undermine the progress achieved so far.

"The current setting of monetary policy is moving in the right direction, with growth holding firm and inflation trending down to the target... Any premature move may undermine the success achieved so far. Price and financial stability are essential to sustain a long haul of high growth,” he said.

"The policy imperative at the current juncture is to remain focused on achieving the 4% inflation target on a durable basis, keeping in mind the objective of growth. Accordingly, I vote to keep the policy repo rate unchanged and continue with the focus on withdrawal of accommodation," Shaktikanta Das concluded.