Mint Road seems staunchly focused on keeping consumer inflation within the 4% target, while standing pat on rates and monetary policy stance. Additionally, the introduction of incremental cash reserve ratio could temporarily harden short-term rates.

The Consumer Price Index (CPI)-based inflation was on a falling trajectory and appeared to have peaked during the June monetary policy review.

But the recent spike in food inflation has created an upside to the RBI’s July-September CPI forecast of 5.2% — a number it now sees rising to 6.2%.

For the current fiscal, it expects the CPI inflation print to be 5.4%, or 30 bps higher than the June forecast.

The spike in vegetable inflation is a recurrent, and often transient, phenomenon and the central bank can afford to look through it.

But high foodgrain inflation, amid threat from weather and global developments, is difficult to ignore, given its higher weight in the CPI basket.

Although repo rate hikes cannot directly impact supply-side driven food inflation, it becomes a concern if it sustains and spills over to other components, and steers headline inflation away from the goal.

So fingers crossed on this.

A 25 bps rate cut in the January-March 2024 quarter is, therefore, a conditional possibility for now.

Dharmakirti Joshi, Chief Economist, CRISIL