RBI Denies Abandoning 4% Inflation Target, Future Rate Actions Hinge on Price Persistence

RBI Governor Reiterates 4% Inflation Target Amid Global Economic Uncertainty

The Reserve Bank of India (RBI) Governor Sanjay Malhotra has emphasized that the central bank's 4% medium-term inflation target remains unchanged and is not in abeyance. In a post-monetary policy press conference, Malhotra addressed concerns that the RBI may be prioritizing growth over inflation and shifting focus to the wider 2-6% tolerance band.

According to Malhotra, the inflation target is to be achieved over a medium-term horizon, not through responses to every short-term deviation. He acknowledged that inflation conditions have turned more adverse than earlier, without signaling any imminent tightening. The RBI kept the repo rate unchanged at 5.25% and maintained a 'neutral' stance.

Malhotra stated that the central bank will closely watch whether inflationary pressures remain temporary or become generalised and persistent. If inflation becomes persistent, it is the time to act, he emphasized. The RBI will remain data-dependent and closely monitor whether supply-led inflation shocks fade or become entrenched.

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Monetary Policy Projections

The RBI has revised its consumer price index (CPI) inflation upward by 0.50% for the FY27 due to the West Asia crisis. The central bank projected CPI inflation for the year at 5.1%, with core inflation at 4.7%. These forecasts are subject to upside risks due to global supply chain disruptions, global commodity price shocks, uncertainty about the spatial and temporal distribution of the south-west monsoon, and El Nino conditions.

Malhotra attributed the increased CPI estimate to the revised oil price estimate of USD 95 per barrel for FY27, up from the earlier estimate of USD 85 per barrel. The longevity of supply chain pressures triggered by the West Asia war and their impact on prices is the foremost focus area for the RBI at the current juncture, with monsoon-related challenges coming next.

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