RBI retains growth and inflation projections for current fiscal at 7.2% and 4.5%

RBI growth projection: The Reserve Bank of India (RBI) has decided to keep its growth and inflation projections for the current fiscal year at 7.2 per cent  and 4.5 per cent, respectively, amid expectations of a normal monsoon.

In its last bi-monthly monetary policy review in June, the RBI had forecasted the same growth and inflation figures.

RBI Governor Shaktikanta Das, announcing the bi-monthly monetary policy, noted that improved agricultural performance is likely to enhance rural consumption, while sustained strength in the services sector would support urban consumption.

Das highlighted several factors contributing to growth: healthy bank and corporate balance sheets, increased government capital expenditure, and signs of rising private investment. Additionally, improving global trade prospects are expected to bolster external demand.

However, he also pointed out risks from prolonged geopolitical tensions, international financial market volatility, and geoeconomic fragmentation.

The RBI projects real GDP growth for 2024-25 at 7.2 per cent, with quarterly estimates as follows: Q1 at 7.1 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent, and Q4 at 7.2 per cent. For Q1 FY26, the real GDP growth is projected at 7.2 per cent, with risks balanced.

Das noted a slight reduction in the growth projection for Q1 compared to the June 2024 forecast, attributing it to updated high-frequency indicators showing lower-than-expected corporate profitability, general government expenditure, and core industries output.

Regarding inflation, Das anticipated some relief in food prices due to the expected normal monsoon and healthy progress in sowing, with cereal buffer stocks remaining above normal levels. Global food prices also showed signs of easing in July after rising since March 2024.

Assuming a normal monsoon, and considering the 4.9 per cent inflation print for Q1, the RBI projects CPI inflation for 2024-25 at 4.5 per cent, with quarterly estimates as follows: Q2 at 4.4 per cent, Q3 at 4.7 per cent and Q4 at 4.3 per cent. CPI inflation for Q1 FY26 is projected at 4.4 per cent, with risks balanced.

Das mentioned that headline CPI inflation rose to 5.1 per cent in June 2024 due to higher-than-expected food inflation, while fuel prices continued to be in deflation for the tenth consecutive month. Core inflation moderated to a historic low in May and June.

He indicated that high food price momentum likely persisted in July, though large favorable base effects might reduce headline inflation during the month. The impact of revised milk prices and mobile tariffs also needs to be monitored.

Under the current monetary policy framework, Das said inflation and growth are progressing in a balanced manner, with overall macroeconomic conditions stable. While growth remains robust and inflation is trending downward, he acknowledged that achieving price stability remains a work in progress due to persistent supply-side shocks, particularly in food items.

The RBI will continue to stay vigilant to ensure inflation trends towards the target while supporting growth, which is expected to positively impact sustained high growth.