The latest assessment of inflation trajectory is a slight shift from the optimism last month as the core inflation (stripping off food and fuel) has turned sticky, although headline inflation could be coming off.
Central bank economists have reacted with caution on the view that India is likely to be among the few emerging economies that would be left standing after the global hurricane has passed. “So, is India decoupling? Time will tell,” said the economists in their assessment of the economy published in the latest monthly bulletin.
“For now, reasonably strong macro-fundamentals by comparator comparison are being tested by the twin whammies of rising international interest rates and an inexorably strengthening US dollar. This is inflicting collateral damage – imported inflation and INR depreciation,” the report said.
Views expressed in the article are those of the team of economists. They also include RBI deputy governor Michael Patra and do not necessarily represent the views of the RBI.
Despite the impact of global developments, the central bank economists are optimistic on the growth front. “The financial markets notwithstanding and despite periodic revisions of forecasts by various agencies in India and abroad, the consensus seems to be that real GDP growth in India will clock 7 per cent or close to it in 2022-23,” said the assessment.
But unlike in the September review, the RBI economists have chosen to remain more hawkish this month.
“This trajectory will likely be gradual in view of the repeated shocks to which inflation has been subjected by both epidemiological and geopolitical causes” said the report. “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 raised the benchmark repo rates- the rate at which it lends to banks – by 50 bps (one bps is 0.01 percent) to 5.9 percent.
“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 economists said in the October assessment.
By contrast, in the September review, they had said that with base effects being favourable in the second half of 2022-23, inflation should moderate.