Inflation Stays at 4% in Just 13 of 102 Months Since MPC’s Inception

RBI’s Inflation Target Remains Elusive as MPC Cuts Rates Amid Growth Optimism

The Reserve Bank of India (RBI) delivered its first repo rate cut in nearly five years on February 7, 2025, projecting inflation to decline to 4.2% in FY26 while maintaining a GDP growth forecast of 6.7%.

Highlights:

• Inflation at 4% is a rarity: Since the Monetary Policy Committee (MPC) was formed in July 2016, inflation has remained around the 4% target (±0.3%) in only 13 out of 102 months, never for more than two months consecutively.
• Rate cut after five years: The MPC unanimously voted to cut the repo rate by 25 basis points (bps) to 6.25%, citing favorable growth-inflation dynamics.
• Longer inflation control expected: If projections hold, FY26 may mark the first time inflation remains within the RBI’s target band for an extended period.

More Highs Than Lows in Inflation Trends

• Inflation has stayed below 4% in just 25% of the last 102 months.
• The longest period of sub-4% inflation was 13 months (Aug 2018 – Aug 2019) and 12 months (Nov 2016 – Oct 2017), with inflation dipping below 2% during the latter period.
• Otherwise, inflation has largely remained above the 4% target, creating challenges for monetary policy.

COVID-19’s Lasting Impact on Inflation

• Since COVID-19 first hit India, inflation has fallen below 4% only twice in 57 months.
• Inflation hovered around 4% for five months, but exceeded 5% in 42 out of 57 months, indicating persistent price pressures.

MPC’s Policy Outlook

Despite the repo rate cut, the RBI remains cautious about inflationary risks, with projections suggesting a dip to 4% by Q2FY26, a further decline to 3.8% in Q3FY26, before inching back up to 4.2% by the end of the fiscal year.

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