SBI report says inflation will remain around 5 per cent this fiscal

The Consumer Price Inflation in India is expected to remain around 5 per cent in the financial year 2024-25 except for September and October month, according to a research report by SBI.

The report also noted that the inflation outlook in India remains a critical focus for the Reserve Bank of India (RBI). Recent data indicates that the Consumer Price Index (CPI) inflation rose to 5.08 per cent in June 2024, driven primarily by higher food and beverage prices.

"CPI inflation is expected to remain below or close to 5.0 per cent in the remaining months, except for Sep'24 and Oct'24" said the report.

The report also added that the monsoon season plays an important role in shaping food prices, and while the current monsoon has shown a satisfactory surplus, excess rainfall could lead to crop losses, adversely affecting food inflation.

The RBI's ability to manage inflation expectations is crucial, especially as it navigates the delicate balance between supporting economic growth and maintaining price stability.

"With monsoon progressing satisfactorily with 2 per cent surplus till date and progress of area coverage under Kharif crops showing 2.9 per cent yoy, we expect inflation to remain within RBI target in FY25. However, with La Nina getting precedence, excess rainfalls could result in crop loss and thus a negative impact on food prices" the report added.

In response to the evolving economic landscape, the report mentioned that the RBI is likely to continue its stance of withdrawing accommodation. This approach aims to address inflationary pressures while ensuring that the economy remains on a growth trajectory.

However, the central bank faces challenges in policy transmission, as deposit rates have shown downward rigidity despite a declining weighted average lending rate (WALR). This situation complicates the RBI's efforts to implement effective monetary policy.

"Even though the Banks are chasing deposits to fund the incremental credit growth, RBI recent report suggests, the weighted average lending rate (WALR) on fresh rupee loan decreased by 11 bps from the beginning of the year (i.e. from 9.43 in January'24 to 9.32 in June'24)" the report noted.

Looking ahead, the RBI's decisions will be influenced by both domestic and global economic conditions. The potential for a recession in the US and geopolitical tensions could impact inflation dynamics in India.

As such, the RBI's monetary policy will need to remain flexible and responsive to these external factors while striving to achieve its inflation targets and support sustainable economic growth. (ANI)