A durable alignment of inflation in India with the mandated target of 4 per cent could resume only in the second half of the current fiscal and sustain closer to the target during 2025-26, according to an article in the RBI’s May bulletin released on Tuesday.

The article was written by a team of economists led by RBI deputy-governor Michael Patra.

This appears to rule out the possibility of a cut in the policy repo rate in this fiscal year. The central bank under governor Shaktikanta Das has maintained that unless inflation sustains around the 4-per-cent level, it would be premature to talk about any reduction in rates.

For seven times in a row, the monetary policy committee (MPC) of the RBI has maintained the repo rate at 6.50 per cent after hiking it 250 basis points between May 2022 and February 2023.

The article said a modest easing of headline inflation in April confirmed the RBI’s premise that an uneven pace of alignment with the 4-per-cent target is underway.

Besides, the prices of vegetables, cereals, pulses, meat and fish in the food category may keep the headline inflation elevated and closer to 5 per cent in the near term.

The RBI has often said the views expressed in the article are solely of the authors.

“While statistical base effects may help pulling down the headline inflation in July and August, it is expected that September may see a reversal,” the article said.

“It is only in the second half of the year that a durable alignment with the target may re-commence and sustain till numbers closer to the target are sighted during the course of 2025-26.’’

In April, the RBI projected that CPI inflation for 2024-25 would come at 4.5 per cent with first quarter at 4.9 per cent; 3.8 per cent in the second quarter, 4.6 and 4.5 per cent in the next two quarters.

Good health

The article observed that India is on the cusp of a long awaited take-off on the back of rising aggregate demand and non-food spending in rural economy. On the other hand, the outlook for the global economy is turning fragile as the descent of inflation is stalling, reigniting the risks to global financial stability.

It noted that for the first time in at least two years, rural demand for fast moving consumer goods (FMCG) has outpaced urban markets in the quarter just gone by.

FMCG volume growth of 6.5 per cent was driven by rural growth of 7.6 per cent relative to urban growth of 5.7 per cent on the back of robust demand for home and personal care products.

In private investment, retained earnings remained the major source of funds during the second half of 2023-24 for listed manufacturing firms.

Results that have been declared by listed corporate so far indicate that they closed the financial year 2023-24 with the highest growth in quarterly revenues registered in January-March 2024 year-on-year as well as sequentially.