Inflation seen closer to target in FY26: RBI's state of the economy report

The Reserve Bank of India's state of the economy report suggests that achieving a durable alignment of headline retail inflation with the 4 percent target could occur in the second half of FY25 and persist until figures closer to the target are observed during FY26. This prognosis dashes hopes of a reduction in the policy repo rate in the current fiscal year. \r

Despite an expected moderation in headline inflation in July and August due to base effects, the report anticipates a reversal in September. Vegetable, cereal, pulses, meat, and fish prices may keep the headline elevated near 5 percent in the near term, in line with projections from the April monetary policy committee resolution. Headline inflation eased to 4.8 percent in April 2024 from 4.9 percent in March, primarily due to a favorable base effect. The report underscores the MPC's commitment to achieving sustainable inflation at the 4 percent target. \r

It also highlights growing global optimism about India's economic prospects, driven by robust GDP growth and rising domestic demand. Additionally, the report notes the trend of emerging market central banks acquiring gold amid heightened global uncertainty, with such banks adding 290 tonnes in the first quarter of 2024.