Sticky food prices key factor for ‘grudgingly slow pace of disinflation’: Monetary policy committee

Though headline inflation has been sequentially moderating since February, albeit in a narrow range from 5.1 per cent in February to 4.8 per cent in April, food inflation still remains elevated due to the persistence of inflation pressures in vegetables, pulses, cereals, and spices.

Accordingly, the MPC has forecast CPI inflation for FY25 at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent.

Goyal, voting for a 25 bps rate cut, said headline inflation has been around 5 per cent since January this year while core inflation has been below 4 per cent since December 2023, which means that volatile commodity prices, El Niño, and heat waves have not been able to reverse the approach to the target.

“The headline inflation projection of 4.5 per cent for FY25 gives an average real repo rate of 2 per cent, implying that the real repo rate will be above neutral for too long if the repo rate stays unchanged. Falling inflation has raised the real repo above unity. This will reduce the real growth rate with a lag,” she said, adding, “Status quoism is praised as being cautious. But if doing nothing distorts real variables, it aggravates shocks instead of smoothing them and raises risk.”