PremiumWith inflation a global concern and central banks, including RBI, on a rate-raising spree, demand will inevitably cool, albeit with some lag, and begin to temper price pressures. RBI expects this to happen by the end of this fiscal year
Soon after the International Monetary Fund snipped its forecast for India’s economic growth to under 7% in 2022-23, there’s more bad news for the economy. Data released on Wednesday shows industrial output contracted 0.8% in August from a year earlier, while retail inflation climbed to 7.4% in September. One may be tempted to attribute the borderline production decline to possibly dodgy data inputs, but there’s no wiggle room on inflation. Not only has it moved further away from the central bank’s 6% upper limit, but it has also stayed too high for three quarters in a row. This means the Reserve Bank of India must write to the government to explain this failure and detail how and when prices will cool. With inflation a global concern and central banks, including RBI, on a rate-raising spree, demand will inevitably cool, albeit with some lag, and begin to temper price pressures. RBI expects this to happen by the end of this fiscal year. Success would make it easier for it to manage price expectations. Unfortunately, we have no way to shake off global uncertainties. Our exposure to these are high, reducing our scope for policy errors.