RBI Governor on Premature Rate Change Amid Inflation Challenges

RBI Governor Shaktikanta Das stated that considering a change in interest rate stance is premature due to the gap between current inflation and the 4% target. He emphasized that the journey to 4% inflation is progressing but the last mile will be challenging. GDP growth is projected at 7.2% for the fiscal year.

Reserve Bank Governor Shaktikanta Das on Thursday emphasized that the question of changing the interest rate stance is premature given the existing gap between current inflation and the 4% target.

"Given the gap between current inflation and 4% target, the question of change of stance is quite premature... when we move towards 4% CPI (retail inflation) on a sustained basis is when we will get the confidence to think about a change in stance," Das mentioned in an interview with CNBC-TV 18.

He pointed out that the inflation journey is progressing as expected but highlighted that the last mile towards the 4% target will be the most challenging or sticky.

CPI-based retail inflation has been projected at 4.5%, with quarter-wise projections of 4.9% in Q1 (April-June), 3.8% in Q2, 4.6% in Q3, and 4.5% in Q4, as stated in RBI's June bi-monthly report.

The RBI, mandated to maintain inflation around 4% (with a margin of 2% on either side), principally bases its monetary policy on CPI.

Das noted that headline inflation had softened during March-April, but persisting food inflation pressures offset gains from disinflation in core and deflation in fuel groups.

While pulses and vegetables inflation persisted in double digits, vegetable prices saw a summer uptick following a shallow winter correction. The deflationary trend in fuel was driven by LPG price cuts in early March.

Core inflation softened for the 11th consecutive month since June 2023. Services inflation moderated to a historic low, and goods inflation remained contained.

Regarding GDP, Das highlighted that growth drivers remained robust, with strong momentum from the fourth quarter of the last financial year extending into the first quarter.

The June policy also revised the GDP growth projection for the current fiscal year upward to 7.2%, driven by rising private consumption and the revival of rural demand. Projected GDP growth of 7.2% for 2024-25 would mark the fourth consecutive year of growth at or above 7%.