cautious monetary policy implementation in the face of uncertainty

"Non-committal" is the best way to characterize the Reserve Bank of India's monetary policy committee's (MPC) guidance at the December rate review. Given its regressive effect on the purchasing power of both rural and urban people, the Governor, speaking on behalf of the MPC, underlined the significance of price stability. The governor countered this by admitting that a sustained slowdown in growth might necessitate policy help. Global risks and the nearly certain spillover effect on the currency and the domestic financial markets must then be taken into consideration. In order to stabilize the financial system by increasing the supply of liquidity, the MPC decided to halt the benchmark rate while navigating these known and unknown factors. First, the updated official predictions recognized and reflected the growing growth-inflation discrepancy. The annual FY25 growth projection was lowered by 60 basis points to 6.6 percent after the dismal 2Q FY25 GDP growth was taken into consideration. The 3Q FY25 and 4Q FY25 forecasts were also lowered by 20 to 60 basis points. The quarterly profile is anticipated to remain above average at 7% in the first half of FY26, however, indicating the MPC's continued underlying optimism regarding the economic trend. With a likely less noticeable rebound in the 2HFY25 than the committee anticipates, we are more cautious at 6.3 percent year-over-year for FY25. For the second consecutive quarter, inflation exceeded official expectations, requiring a 90 basis point and 30 basis point increase in the 3QFY and 4QFY projections, respectively. This raised the annual inflation rate to 4.8 percent from the previous 4.5 percent. Good soil moisture conditions and comfortable reservoir levels bode well for rabi output, and authorities are depending on winter disinflation in perishables, particularly vegetables, and the advent of the kharif harvest. One important issue that could affect when a long-term alignment with the 4 percent inflation target is achieved is weather events. If rabi crop sowing is impacted by a late winter onset, the disinflation trend may proceed slowly. The economy experienced heatwaves and heavy rains between 2022 and 2024, which had an effect on supply chains from farm to fork. This has made inflation more vulnerable than just monsoon rainfall and the resulting reservoir levels. Food inflation and the World Bank's annual mean surface air temperature for India have a 0.5 association, according to a straightforward experiment.