While consumer price index (CPI)-based inflation for FY24 is expected to be 5.4%, for the first three quarters of 2024-25, it is predicted to be 4.6%, according to ‘State of the Economy’ article published in the December Bulletin of the RBI magazine.
According to an article published in the monthly bulletin of the Reserve Bank of India (RBI), if inflation is not brought back to the 4% target and “sticked to it”, there is a possibility that growth will suffer.
While consumer price index (CPI)-based inflation for FY24 is expected to be 5.4%, for the first three quarters of 2024-25, it is predicted to be 4.6%, according to ‘State of the Economy’ article published in the December Bulletin of the RBI magazine.
“The goal of sustainably adjusting inflation to the 4% target is “unable to be guaranteed”. If inflation is not brought to the target and tied to that target, it is likely that growth will weaken,” the article wrote. Headline inflation, measured by annual changes in the all-India CPI, rose to 5.6% in November 2023, from 4.9% in October. In September, CPI was at level of 5.02%. RBI Governor Shaktikanta Das has emphasized that the central bank is fully focused on achieving the 4% inflation target. In its December policy, the RBI kept the repo rate – the policy rate – unchanged at 6.5% for the fifth consecutive time on concerns about rising inflation amid food price uncertainty.
The article added that lower inflation figures in September and October 2023 and a prolonged pause in monetary policy stance have led to some dystopia among some stakeholders – a longer-term view absurd that inflation is expected to move toward the 4% target at some point. . The distant future is clear, while the high short-term risk of a spike in inflation due to food fluctuations is unclear.
Under these conditions, we are calling for interest rate cuts or at least the central bank to embark on the path of moderating key interest rates. Such opinions jeopardize the implementation of monetary policy aimed at pursuing the goal of sustainably adjusting inflation to the target (4%),” the article stated, adding that these opinions This bias also weakens the foundations of growth.
The article was compiled by RBI Deputy Governor Michael Patra and other central bank officials. The views expressed in the article are those of the authors and not of the institution, RBI said. Previous editions of the State of the Economy article highlighted that household inflation expectations remain unmet; Business and consumer confidence in the inflation outlook has not yet become optimistic. In real time, inflation affects discretionary consumer spending, which in turn reduces revenue growth as well as investments by manufacturing companies, he said. On the economy, the article said, despite significant global headwinds, the Indian economy remains the fastest growing major economy in 2023.
Growth is expected to be sustained in the second half of 2023-24 and 2024-25 despite certain moderation.
The RBI, in its December monetary policy, revised its real GDP forecast for FY24 to 7%, from 6.5% previously. “In India, the ongoing pickup in broad-based economic activity is likely to be supported by lower input costs and lower corporate profits,” he said. Domestic financial markets are also supported by the continued strength of the real economy.
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