For the second time in a row, India’s inflation remains below the central bank limit of 6.5 %. In the last month’s monetary policy meeting, RBI had decided to hold off any hikes in interest rates, and it is expected to do the same for the next monetary policy meeting in June.
According to the data released on May 12, India’s consumer cost inflation was at an 18-month low of 4.7 % in April 2024. April’s inflation rate of 4.7 % is the second consecutive time that the inflation has remained below the Reserve bank of India’s ceiling of 6.5 %.
In the previous month’s monetary policy meeting, RBI had taken a bold step of going against market predictions and holding off any hikes in the interest rates. Reports suggested that the central bank was taking a “wait and watch” approach. The new data suggests that RBI made the right call to hold off interest rates.
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India’s monetary policy is on the right track, says RBI Governor Shaktikanta Das
Inflation had hit its peak rate of 7.79 %in April 20022. Since then, the Reserve Bank of India (RBI) has raised its primary lending rate by a cumulative total of 250 basis points.
Economists agree that the pause in inflation rate has provided the RBI and the consumers with much needed relief.
On the topic whether the inflation pause is here to stay or whether it is temporary, some economists are arguing that nothing concrete can be said taking into account the global macroeconomic uncertainties in the post-pandemic period.
Other economists, however, believe that the pause in repo rate is here to stay and that with inflation cooling down, India can be at ease regarding inflation worries.
Analysts are predicting that the Reserve bank of India will hold off any rate-hikes again at the next monetary policy meeting in June. Furthermore, the central bank may hit a pause on interest rate hikes till the end of the year, after which a decrease in rates can be expected.
The Reserve Bank of India (RBI) Governor Shaktikanta Das said that India’s latest inflation numbers are very satisfactory. He further added that the inflation data has given him a “good amount of confidence that the monetary policy is on the right track.”
A bad monsoon might lead RBI to increase interest rates
Although India is on the right track with the inflation cooling down and the economy growing, there is still a looming fear of how external factors may influence India’s inflation and economy.
With the US economy facing a possible default incase of no agreement regarding the debt ceiling negotiations and resultantly going into recession, it is to be seen how such an event, if it occurs, will impact the global economy, or more so, the Indian economy.
Another factor that may affect India’s inflation negatively is a bad monsoon season. Food inflation accounts for almost half of the consumer price sector.
Though the food inflation saw a fall in the April month, a bad monsoon, which would ultimately lead to low produce, might raise the inflation rate again.
Skymet, a private agency, has predicted rainfall to be below-normal for this season. IMD, on the other hand, has predicted a normal monsoon season for 2024.
If the monsoon season doesn’t bring expected yields, the pressure will fall again on the monetary policy committee to deal with the scenario by raising the repo rate
