CPI (Consumer Price Index) based inflation averaged 5.5 per cent during FY22, 50 basis points lower than the upper limit of the RBI Monetary Policy Committee inflation band.
Highlight
- The Finance Ministry said that the measures taken by the RBI and the government will reduce the duration
- Retail inflation has been operating above the upper tolerance level of 6% for the past three months
- RBI hiked key repo rate in an off-cycle announcement earlier this month
The Finance Ministry on Thursday said the measures taken by the RBI and the government will ease the period of high inflation due to global factors.
Retail inflation has been operating above the Reserve Bank’s upper tolerance level of 6 per cent for the past three months. “While inflation is expected to pick up in 2022-23, mitigating action by the government and the RBI may shorten its duration. Evidence on consumption patterns further suggests that inflation in India is driven by lower incomes than higher incomes. There is less impact on the level group,” said the monthly economic review of the finance ministry.
The RBI in an off-cycle announcement earlier this month raised the key repo rate – at which it lends short-term money to banks – from 0.40 per cent to 4.40 per cent to tame inflation. This was the first rate hike since August 2018 and the fastest in 11 years. Furthermore, it said, as aggregate demand is improving gradually, the risk of sustained high inflation remains low. Viewed over a longer time horizon, it said, inflation in India’s economy is not as much of a challenge as felt by month-to-month changes.
The CPI (Consumer Price Index) based inflation averaged 5.5 per cent during FY12, 50 basis points above the upper limit of the RBI Monetary Policy Committee inflation band and below 6.2 per cent for FY2011. The RBI raised its inflation forecast for the current fiscal to 5.7 per cent from the earlier forecast of 4.5 per cent due to geopolitical tensions. Beginning in May, most major central banks, including the US Federal Reserve and the Bank of England, also raised their benchmark rates to rein in rising inflation.
The market, as reflected by the rise in bond yields, has already priced in an increase in policy rates, including those expected later in the year, apart from absorption of additional liquidity, it said. Global growth watchers, as reflected by their sluggish growth projections, have also incorporated monetary tightening around the world to quell global inflation, it said. The cost of restraining inflation – the slowing pace of global growth – appears in the April update of the IMF’s World Economic Outlook (WEO) forecast for global output growth to slow to 3.6 percent from 6.1 percent in 2021. percentage in 2022 as well as 2023.
“Among the major countries, the WEO projects India as the fastest growing economy at 8.2 per cent in 2022-23. Crediting this projection, the financial year 2022-23 began with a strong economic activity in April. Strong performance of e-way bill generation, ETC toll collection, power consumption, PMI manufacturing and PMI services as seen with growth.” Despite the presence of inflationary constraints, the government’s capital expenditure-driven fiscal route, as set out in Budget 2022-23, will help the economy register a growth of around 8 per cent in real GDP for the current year , it said.
With regard to foreign exchange reserves, it said, the reserves were at a comfortable level of USD 597.7 billion, which provides about 11 months of import cover to finance investment and consumption in the country. It said reserves continue to decline under pressure from foreign portfolio investment outflows in response to monetary tightening by central banks in advanced economies.
Despite turbulence linked to monetary tightness in advanced economies, ongoing geopolitical conflicts, lockdowns in parts of China and supply-side disruptions, India has weathered the storm compared to other countries and remained stable during the current financial year. is in a relatively better position to achieve growth. years, the report said. Rise in food and energy prices is a global phenomenon and even many advanced countries have higher inflation rates than India, saying the Reserve Bank of India indicated its determination to tackle inflation and that will also maintain macroeconomic stability and growth.
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