The bank has said in its recent report that weak urban demand and global uncertainty have opened up the possibility of a cut in the repo rate or policy rates for the Reserve Bank of India (RBI). For now, the central bank is adopting a neutral position and is moving forward with a data-based approach.
The report says that monetary policy is looking towards the future. Inflation figures are likely to remain high next year due to the low base effect, but weak urban and uncertain external demand have opened up the scope for easing rates.
Given the reduction in inflation and sluggish growth rate, the RBI’s Monetary Policy Committee (MPC) may cut policy rates by 25 basis points in August. This cut can prove to be helpful in accelerating the economy.
Inflation reduced
The decline in the inflation rate is mainly due to the reduction in the prices of food items. This is a positive sign for the country’s economy.
Inflation remained lower than the quarterly estimates
Inflation figures in the first quarter of the current financial year 2024-25 were 20 basis points lower than the MPC’s estimate. This shows that the RBI’s efforts to control inflation are succeeding.
Expected to remain low going forward
Inflation is likely to remain lower than the MPC’s estimate in the second and third quarters as well. This is extremely important for economic stability.
Historic decline in food inflation
Food inflation has come down to -1.1 percent on an annual basis, which is the weakest level in the last seven years. This is big relief news for consumers.
Huge drop in vegetable prices
This includes a 19 percent decline in vegetable prices. This presents a complex situation for both farmers and consumers, but overall, it helps in reducing inflation.
Good rains and grain production
More than normal rains are expected this year, due to which grain production is likely to remain strong. This will help keep food prices stable in the future.
The report said that inflation figures are likely to remain low in the short term, while core inflation is increasing gradually. Exports to the US are increasing, but exports to other regions are sluggish, which reflects global economic uncertainty.
