The Reserve Bank of India (RBI) is set to modify its financial strategy to tackle inflationary issues and support economic expansion. The repo rate is projected to drop by 25 basis points (bps) in FY25, with an additional 50 bps reduction expected at the start of FY26. These actions seek to keep inflation in the government-designated 2-6% tolerance range, promoting financial stability.
As per a report from PL Capital, India's inflation is expected to normalize at an average of 4.3-4.7% in FY26. This moderation is linked to reduced food inflation and enhanced agricultural production, fueled by improved rabi crop yields and consistent output.
"Inflation is likely to average around 4.3-4.7 per cent in FY26, monetary policy easing likely: Food inflation seems to have peaked out, and the overall trend is likely to moderate in 2025," the report highlighted.
The challenges of 2024 were pulled by high inflation occasioned by heat waves and irregular rainfall patterns that affected crop production. Some of the basic items most felt by households were onions, tomatoes, cereals and edible oil, which recorded a spike. Falling to 5.8% in September 2024, the CPI inflation rate rose to above 6% in October 2024, and food inflation crossed 10% for the first time in more than a year.
The report emphasized, "CPI inflation breached 6 per cent in October, with food inflation crossing the double-digit mark after 14 months mainly due to impact of higher import duty on edible oils."
As food inflation comes off and the condition of the farm sector gradually strengthens, monetary easing by the RBI could offer some much-needed reprieve. These developments portend well for businesses and consumers; they will help engineer economic growth and stability in FY26.
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