Inflation risks rise on poor monsoon, El Niño concerns: RBI Governor

Inflation risks have increased due to expectations of a below-normal monsoon and possible El Niño conditions, Reserve Bank of India (RBI) Governor Sanjay Malhotra said, while cautioning that food price pressures could rise in the coming months.
Speaking during the Monetary Policy Committee (MPC) meeting held from June 3-5 (as per minutes of the meeting released by the RBI on Friday), Malhotra noted that while the near-term inflation outlook remains favourable due to a strong rabi crop and adequate food stocks, weather-related risks have intensified following the Indian Meteorological Department’s (IMD) forecast of a below-normal monsoon.The RBI Governor said headline retail inflation is expected to rise towards the upper tolerance limit of 6 per cent in the third quarter of the current financial year. However, he supported a “wait and watch” approach, citing uncertainties surrounding inflation and growth projections.
“We need to be watchful of the inflation trajectory. Going forward, revision in retail prices of petrol and diesel in May would lead to higher fuel inflation in the coming months,” Malhotra said, according to the minutes of the MPC meeting released by the RBI.He highlighted that several factors could influence the inflation path, including the duration of global conflicts, supply chain disruptions, monsoon intensity and its impact on food, energy and commodity prices.
The Governor pointed out that most of the recent increase in headline inflation has been driven by food and fuel prices, which are largely supply-side factors. Core inflation, excluding food and fuel components, remains contained, indicating limited underlying price pressures.“Even though it is inflation outlook which is more relevant for monetary policy, current inflation merits attention, especially when the outlook is clouded,” Malhotra said, adding that core inflation for 2026-27 is projected at 4.7 per cent.
RBI Deputy Governor Poonam Gupta also favoured caution, arguing against an immediate policy shift. She said global and weather-related uncertainties should be allowed to unfold before deciding on any change in the policy cycle.External MPC member Saugata Bhattacharya warned that energy prices may not return to pre-conflict levels in the near or medium term, with prolonged disruptions posing broader economic risks.At the June MPC meeting, the committee unanimously decided to keep policy rates unchanged, while lowering its GDP growth projection and raising inflation estimates.

(Business Correspondent)