On Thursday, the governor of the Reserve Bank of India (RBI), Shaktikanta Das, announced that the Monetary Policy Committee (MPC) had reduced its Consumer Price Index (CPI) based inflation forecast for FY24 from 5.3% to 5.2%, while slightly increasing the real GDP forecast for FY24 to 6.5% from 6.4%.

Despite the current softening of inflation, Das reiterated the need to continue the fight against inflation until there is a sustainable decline. The RBI MPC maintained a 5.4% CPI inflation projection for the second and third quarters of the fiscal year, with a lowered projection of 5.2% for the fourth quarter compared to the earlier forecast of 5.6%.

Das also noted that the expectation of a record rabi harvest is a positive sign. Still, he cautioned that the impact of recent unseasonal rains needs to be monitored while highlighting the significant moderation in global commodity prices.

Some economists believe that the announcement suggests that the RBI’s rate hike cycle may be nearing its end. The Wholesale Price Index for February 2023 dropped to a 25-month low of 3.85%, and the core inflation for February decreased to 2.4% from 2.8% in the previous month.

The RBI’s MPC slightly revised its projection of retail price inflation down by 10 basis points for FY24, with a forecast that the rate of price increase will cool by 40 basis points in the fourth quarter compared to its previous forecast. The MPC also revised its economic growth projection slightly higher by 10 basis points to 6.5% for FY24.