Inflation to fall from Q4 of FY25, says RBI Governor Shaktikanta Das; warns of risks amid geopolitical tensions

Inflation is expected to decline gradually starting from the last quarter of the current financial year, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. However, he also warned that escalating geopolitical tensions and unpredictable weather conditions pose significant risks to this outlook.

“The headline inflation trajectory is projected to gradually decline starting from the last quarter of this financial year. The main risks to raising the inflation outlook include unexpected weather events and worsening geopolitical conditions,” Das said during the Macro Week event organized by the Peterson Institute for International Economics (PIIE) in Washington on October 25.

Retail inflation, or consumer price index (CPI), rose to a nine-month high of 5.49% in September, led by rising food prices, after easing to 3.6% in July and 3.7% in August. . RBI expects inflation to average around 4.5% in FY25, with the long-term target being to bring it down to 4% sustainably.

Das also emphasized the need for reforms in the international financial system to better address the challenges faced by developing economies in the changing global economic environment.

“Reforming the international financial architecture must be a top priority. This includes creating inclusive global governance systems that reflect the realities of today’s economies,” he said.

He stressed that institutions such as the International Monetary Fund (IMF) and the World Bank must give developing countries greater access to resources and a greater role in decision-making processes.

“Greater access to resources and a stronger governance role in institutions such as the IMF and the World Bank will enhance their legitimacy and facilitate more effective global cooperation in addressing macro-financial challenges,” Das said.

The RBI Governor expressed concern about structural weaknesses in the global monetary and financial system, highlighting that recent events have exposed vulnerabilities affecting both developed and emerging markets. He called for stronger global financial regulation to manage risks associated with private capital flows and the growing influence of non-bank financial intermediaries.

Das also warned against the risks posed by the rise of shadow banking, fintech and decentralized finance, which are complicating the global financial landscape. He advocated for a stronger regulatory framework to mitigate the potential impacts of contagion, emphasizing that financial stability should be viewed as a “global public good.”

Speaking about the impact of geopolitical tensions on global economic policy, Das noted that actions such as sanctions, trade restrictions and supply chain disruptions lead to economic fragmentation. He stressed the need for countries to secure supply chains in critical sectors, including energy and strategic materials.

Governor Das emphasized the vital role of the G20 in promoting unity and preventing further economic division, saying inclusive and balanced reform of the international financial architecture is critical to global stability. “The G20 must take a leading role in preventing economic fragmentation by promoting open markets and securing supply chains,” he concluded.

(With participation of agencies)