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We want the elephant of inflation to walk back to the forest: Shaktikanta Das

We want the elephant of inflation to walk back to the forest: Shaktikanta Das
  • RBI’s MPC keeps interest rates unchanged in the first policy of FY25.
  • Most experts had expected the RBI to maintain the status quo on interest rates.
  • A few, however, expected it to soften its hawkish forward guidance.
The Indian central bank’s rate-setting panel, the Monetary Policy Committee (MPC), kept the repo rate unchanged at 6.5% on Friday. It remained focused on the withdrawal of accommodation in the first monetary policy of FY25. Both these decisions were taken with a majority of five to one.

“Two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis,” said Shaktikanta Das, governor of the Reserve Bank of India.

The second advance estimate (SAE) placed real GDP growth at 7.6% for the recently concluded FY24 — the third successive year of 7 per cent or higher growth. RBI projects FY25’s real GDP growth at 7%.

“Robust growth prospects provide the policy space to remain focused on inflation and ensure its descent to the target of 4%. Under these circumstances, monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission of the past actions,” said Shaktikanta Das, governor of the Reserve Bank of India.

His speech pointed out that uncertainties in food prices continue to pose challenges especially as temperatures are expected to be above normal. The MPC remains vigilant to the upside risks to inflation that might derail the path of disinflation.

“Elephant moves slowly, and last mile inflation tends to be sticky,” said Das at the RBI press conference.

RBI sees FY25’s consumer price inflation (CPI) inflation, assuming a normal monsoon, at 4.5%. The RBI had repeatedly insisted that it intends to bring down retail inflation below 4%.

“It is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns with the target on a durable basis. Till this is achieved, our task remains unfinished,” said Das pointing to frequent incidences of supply chain shocks. He also added that the crude oil price movements in the last few days.

GDP growth & inflation projections by RBI for FY25
Time period

Real GDP growth

CPI inflation




Q1 FY25



Q2 FY25



Q3 FY25



Q4 FY25



Hot inflation keeping RBI in wait-and-watch mode say economists

This is the seventh consecutive policy review cycle where the MPC has chosen to keep the repo rate unchanged at 6.5%. Most experts have been expecting the RBI to maintain the status quo.

Its current decision, most say, is a balanced approach towards growth while being vigilant over headline inflation.

“This careful stance reflects concerns over potential inflationary pressures arising from volatile food prices, recent upticks in oil prices, and robust economic growth. While there was some anticipation of rate cuts by the end of 2024, the RBI seems inclined to adopt a wait-and-see approach before initiating a rate cut cycle,” says Sujan Hajra, chief economist & executive director at Anand Rathi Shares and Stock Brokers.

Volatile food inflation in the last few months has been worrying economists. The ongoing heatwave combined with the persistent El Niño impact brings back worries about cereal and pulse price hikes. While the wheat crop has by and large been harvested, vegetable prices also pose an additional worry.

The Indian Meteorological Department (IMD) has predicted higher-than-normal maximum temperatures across the country this summer. While core inflation has been softening, in the last few days, crude oil prices have inched up to cross $90 per barrel.

"The monetary policy stance announced today reflects that the RBI is evenly balancing the two divergent objectives of growth and inflation. It seems a case of full commitment to growth with an even higher commitment to inflation targets. I hope we will see sustained growth and softened inflation,” Anu Aggarwal, president & head of corporate banking, Kotak Mahindra Bank.

The RBI governor’s stance on bringing down inflation has made economists delay their rate cut expectations as far as Q3 of FY25. The Bank of Japan has recently ended its negative interest rate policy and the US Fed has also delayed its much anticipated easing cycle. Most economists believe that RBI policy is pegged to the Fed, especially in the last two years, even as it formally targeted inflation.

“External dynamics have been fluid, implying that the policy prerogative needs to be flexible for ensuring financial stability. We maintain the RBI’s tone will slowly tiptoe to ‘Gracklish’ from the usual ‘Hawk-Dove’ signaling, implying a non-committal stance and limited definite forward guidance ahead,” said Madhavi Arora, lead economist, Emkay Global Financial Services.