MUMBAI: The Reserve Bank of India has said that its monetary policy remains focused on realigning inflation within the targeted band, but said the fight will be “dogged” and “prolonged”.
“The fight against inflation will be dogged and prolonged, given the long and variable lags with which monetary policy operates, and fraught with uncertainties,” the RBI said in its October 2022 bulletin released on Monday.
Inflation has been hovering around 7 per cent since the beginning of 2022. According to the RBI, the headline retail inflation is expected to remain elevated at around 6 per cent in the second half of 2022-23.
As per the National Statistical Office (NSO) latest data, India’s retail inflation surged to 7.41 per cent in September, remaining above the Reserve Bank of India’s mandated range of 2-6 per cent for the third straight quarter.
While the persistence of headline CPI inflation above the tolerance band for three consecutive quarters (up to September) will trigger mandated accountability processes, monetary policy remains focused on realigning inflation with the target. This may involve two milestones — first, bringing it within the tolerance band and second, lowering to around its mid-point, the RBI said.
This trajectory will likely be gradual in view of the repeated shocks to which inflation has been subjected by both epidemiological and geopolitical causes, but the easing of inflation will inject confidence into both consumers and businesses, recharge animal spirits and investment and improve the international competitiveness of India’s exports, the central bank added.
The Monetary Policy Committee (MPC) met on September 28, 29 and 30. Based on an assessment of the macroeconomic situation and its outlook, the MPC decided by a majority of five members out of six to increase the policy repo rate by 50 basis points to 5.9 per cent, with immediate effect.
Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.65 per cent; and the marginal standing facility (MSF) rate and the Bank Rate to 6.15 per cent. The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth, RBI Governor Shaktikanta Das said in his statement in the monthly bulletin.
On the state of the economy, the RBI bulletin noted, “Aggressive and synchronised monetary tightening has further weakened global economic prospects as financial markets sold off, investors took fright and jettisoned risky assets. In India, broader economic activity has remained resilient and poised to expand further with domestic demand accelerating as the contact-intensive sectors are experiencing a bounce-back.”
Robust credit growth and fortified corporate and bank balance sheets provide further strength to the economy. Headline inflation is set to ease from its September high, albeit stubbornly, on the back of easing momentum and favourable base effects. These factors will entrench India’s prospects as one of the fastest-growing economies of the world. (ANI)