The fight against inflation will be dogged and prolonged, given the long and variable lags with which monetary policy operates, an RBI article said.
“Yet, if we succeed, we will entrench India’s prospects as one of the fastest growing economies of the world enjoying a negative inflation differential with the rest of the world,” according to the article on the state of economy authored by a team lead by Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra.
It said this happy outcome will re-enthuse foreign investors, stabilise markets and secure financial stability on an enduring basis.
Retail inflation spiked to 7.41 per cent in September, remaining above RBI’s upper tolerance level of 6 per cent for the ninth month in a row.
With inflation remaining above the 6 per cent level, RBI, now, will have to give a report to the central government giving reasons for failure to contain inflation at 4 per cent with a bias of 2 per cent on either side.
“While the persistence of headline CPI (Consumer Price Index) inflation above the tolerance band for three consecutive quarters (up to September) will trigger mandated accountability processes, monetary policy remains focussed on realigning inflation with the target,” the article said.
The article has been published in the RBI’s October bulletin.
The central bank said the views expressed in the article are those of the authors and do not represent its views.
Headline inflation is set to ease from its September high, albeit stubbornly, on the back of easing momentum and favourable base effects.
“These positive developments are likely to be driven by the food and beverages, which has undergone repeated shocks in the first half of the year,” it said.
There has also been an appreciable decline in WPI inflation in September on a broad-based easing across its constituents.
Easing in international price pressures embodied in commodity and supply chain pressures are also likely to contribute to the softening of costs and prices.
The article also mentions that India is poised to consolidate and accelerate the recovery over the rest of the year.
It said the momentum of real GDP growth is expected to shed the drag embedded in the NSO’s estimates for the first quarter of 2022-23 and move into positive territory in the remaining quarters, including on a seasonally adjusted basis.
“Although this may not be evident in year-on-year growth rates due to unfavourable base effects, q-o-q annualised rates will reflect the underlying recovery,” it said.
According to the article, contact-intensive sectors will likely lead the rejuvenation as the restraint due to the pandemic waned. Festival-related spending is already boosting consumption demand with positive externalities for other components of domestic demand.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)