The Reserve Bank of India (RBI) has said “there are indications that inflation may be peaking” and that it may fall back into the tolerance band (under 6 per cent) by the fourth quarter of 2022-23. It added that monetary policy actions in India will be more moderate than elsewhere in the world and that inflation may be back to target (4 per cent) within two years.
“Monetary policy is usually unsung. Whenever risks surround the Indian economy, the RBI rises up with everything at its command in defence of the Indian economy. When the danger recedes, the RBI reposes back to anonymity, ready to rise again when the going gets tough… It may be a premature prognosis, but there are indications that inflation may be peaking. As monetary policy works through into the economy and inflation falls back into the tolerance band by the fourth quarter of 2022-23, it will be the playing out of the baseline scenario,” according to the RBI’s July 2022 Bulletin.
It added that in an alternative simulation which incorporates the policy actions undertaken so far, the easing of inflation could be even sooner and faster. The key is the direction of change in inflation – not its level – in these extraordinary times.
“Against this backdrop, it is our hope that required monetary policy actions in India will be more moderate than elsewhere in the world and that we will be able to bring inflation back to target within a two-year time span,” according to the Bulletin, which counts RBI Deputy Governor Michael Patra among its authors.
It also said the “worst of inflation may be behind us”. “For the second month in a row in June, headline CPI inflation eased in India, according to the July 12, 2022 data release of the National Statistics Office (NSO), on the back of receding food inflation. Very grudgingly, as we foretold, but diverging from the global central tendency… Several global developments are pointing in that direction.”
The retail inflation in India during June stood at 7.01 per cent, which is slightly lower than the 7.04 per cent recorded in May. This is the sixth consecutive month that the inflation is above the RBI’s tolerance limit of six per cent. Inflation in rural areas stood at 7.09 per cent during June 2022, while that in urban areas was 6.92 per cent.
However, this is the second consecutive month that has seen a slight easing in inflation as compared to the previous month. The inflation in April had stood at 7.79 per cent, which fell to 7.04 per cent in May and now to 7.01 per cent in June.
Under the ‘State of The Economy’, the RBI said that in a global landscape marred by fears of recession and war, the Indian economy shows resilience. The recent revival of the monsoon, the pick-up in manufacturing and services, stabilisation of inflation pressures and strong buffers in the form of adequate international reserves, sufficient foodgrain stocks and a well-capitalised financial system together brighten the outlook and strengthen the conditions for a sustainable high growth trajectory in the medium-term.
Recently, prices of Brent crude oil, among other commodities, have cooled off significantly.
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