Inflation may sniff at 4% target in second half: RBI paper

A durable alignment of the 4% inflation target may begin to appear from the second half of the current fiscal year, the central bank economists led by the deputy governor Michael Debabrata Patra, who is in charge of the monetary policy department at the Mint Road have said in the latest monthly bulletin.

“It is only in the second half of the year that a durable alignment with the 4% target may re-commence and sustain till numbers closer to the target are sighted during the course of FY26,” says the RBI Monthly Bulletin in its State of the Economy report co-authored by Deputy Governor Michael Patra – one of the three RBI representatives on the Monetary Policy Committee (MPC) – as one of its co-authors.

The monetary policy committee is mandated to bring retail inflation at of 4%, with a leeway of 2 percentage point on either side. But the central bank has not been able to meet the target so far on a durable basis instead it had missed it during the pandemic. And three successive quarter of missing the target entails the governor to write to the government.

The authors base their optimism to statistical base effects which may help pull down the headline inflation in July and August of this year, but which may reverse upwardly again from September, the article warned.

Headline retail inflation stayed largely unchanged at 4.83% in April, according to official data and the consumer price index (CPI) inflation in March was at a 10-month low of 4.85%.

RBI is worried over the impact of the food prices, which have been on a northward-ho from many months due to the heatwave conditions in many parts of the country and the general election-induced higher cash supply in the economy.

Food inflation rose to 7.9 percent in April from 7.7 percent in March led by firming prices of cereals, meat, fish and fruits, while eggs, milk, vegetables, pulses, sugar, spices, non-alcoholic beverages and prepared meals saw a marginal moderation.

Meanwhile, the RBI report hints as growing optimism that ‘India is on the cusp of a long-awaited economic take-off’.

The report says recent indicators are pointing to a quickening of the momentum of aggregate demand as non-food spending is being pushed up by the green shoots of rural spending recovery.