RBI MPC Minutes: Food inflation pressures show little sign of abating in the short term, observes central bank

The Reserve Bank of India (RBI) on Thursday noted that policy must continue to be actively disinflationary to ensure that inflation remains anchored at its target level. In MPC minutes released today, the central bank noted that headline inflation rose to 5.1 percent in June as food inflation pressures increased, offsetting the impact of subdued core inflation (CPI excluding food and fuel) and fuel deflation.

Even though food inflation remains high, the RBI's rate panel noted that price stability and robust growth had created scope for a clearly inflation-focused monetary policy.

On future indicators, the RBI noted that headline inflation is expected to be lower in July and the second quarter of the current fiscal year due to its base effect advantage. However, with food inflation pressures showing little sign of abating in the near term and household inflation expectations rising, monetary policy needs to remain vigilant to avoid any potential impact of food price pressures on core components.

The statement said: “This is critical for the 'last mile of disinflation' and anchoring inflation expectations. Food inflation may ease due to a good monsoon, steady improvement in kharif sowing, rising water levels and a likely favourable rabi season. However, uncertainty arises from frequently recurring adverse weather events, a resurgence of geopolitical tensions and financial market volatility. Moreover, core inflation may have just bottomed out.”

“Inflation is gradually declining, but the pace is slow and uneven. A sustained convergence of inflation towards the target of 4.0 percent is still a long way off. Persistent food inflation is adding stickiness to headline inflation,” said RBI Governor Shaktikanta Das.

Earlier this month, the Monetary Policy Committee (MPC) of the Reserve Bank of India decided to keep the key repo rate unchanged at 6.50% for the ninth consecutive month.

He noted that the economic momentum from the fourth quarter of fiscal 2024 continued into the first quarter of fiscal 2025, despite a decline in corporate profits, lower government spending and a decline in core production.

Das said positive developments including favourable Kharif sowing progress due to southwest monsoon and improved water levels in reservoirs are expected to support the Rabi crop. Moreover, increase in agricultural activity is expected to boost rural consumption while urban consumption remains stable.