The RBI’s latest State of the Economy report emphasizes the need to consider short-term risks while evaluating the long-term goal of maintaining 4% inflation. The report forecasts strong growth for the Indian economy, supported by lower input costs and rising corporate profits.

Released shortly after the Monetary Policy Committee (MPC) meeting on December 8, the report predicts a decrease in inflation to 4.6% in the initial three-quarters of FY25. This projection is attributed to the resolution of supply-side issues and the decreasing impact of base effects. Additionally, it identifies inflation as a crucial risk factor affecting growth.

The RBI article also highlights the impressive GDP growth of 7.7% during the first half of the fiscal year, stating that it has left critics astonished. The report addresses the irrational perception of some stakeholders who can clearly foresee inflation approaching the 4% target in the distant future, while ignoring the immediate risks associated with food price volatility.

RBI Governor Shaktikanta Das, during the MPC meeting, projected CPI inflation for Q1 2024-25 at 5.2%, Q2 at 4%, and Q3 at 4.7%. The guidance of 4.7% has led many to believe that inflation will remain within the RBI’s comfort zone next year. However, the report acknowledges the growing demand for rate cuts or a commitment to a moderation path in the policy rate. It cautions that such views can jeopardize the conduct of monetary policy and undermine the foundations of growth.