A durable alignment with the 4 per cent headline inflation target may re-commence only in the second half of the year and sustain till numbers closer to the target are sighted during the course of 2025-26, according to an article in RBI’s latest monthly bulletin.

The implication of the aforementioned statement coupled with the observation in the article that “fearing the folly of haste, they (global central banks) will likely want to stay patient and high for longer than current forecasts” could be that repo rate cuts may start only in FY26.

uneven pace

In the article “State of the Economy”, RBI officials noted that a modest easing of headline inflation in the reading for April 2024 confirmed their expectation that an uneven pace of alignment with the target is underway.

Headline inflation, as measured by year-on-year (yoy) changes in the all-India CPI, moderated to 4.8 per cent in April 2024 from 4.9 per cent in March.

The officials opined that prices of vegetables, cereals, pulses, meat and fish in the food category may keep the headline elevated and closer to 5 per cent in the near term, in line with projections set out in the April MPC (monetary policy committee) resolution in spite of deflation in fuel prices and further softening of core inflation to a new historic low.

While statistical base effects may help pulling down the headline inflation in July and August, it is expected that September may see a reversal, they added.

economic take-off

Economic take-off

Referring to OCED’s latest economic outlook, the authors said India is projected to remain the fastest growing major economy with GDP growth of 6.6 per cent in FY25.

They emphasised that the Indian economy has demonstrated marked resilience in the face of geopolitical headwinds imparting supply chain pressures.

According to the economic activity index (EAI), activity rebounded in April and early estimates suggest that GDP growth for Q1 (April-June) 2024-25 is likely to remain close to 7.5 per cent.

“Internationally, there is a growing optimism that India is on the cusp of a long-awaited economic takeoff... Recent indicators are pointing to a quickening of the momentum of aggregate demand.

“Non-food spending is being pushed up by the green shoots of rural spending recovery,” the officials said.

Global economy

They cautioned that the outlook for the global economy is turning fragile as the descent of inflation is stalling, re-igniting risks to global financial stability. Capital flows have become volatile as nervous investors turn risk averse, they addded.