The Reserve Bank of India (RBI) in its article on Monday said that the battle against inflation will be dogged and prolonged, given the long and variable lags with which monetary policy operates. The article has been published in the RBI's October bulletin.
According to the article on the state of economy authored by a team lead by the RBI Deputy Governor Michael Debabrata Patra, "Yet, if we succeed, we will entrench India's prospects as one of the fastest growing economies of the world enjoying a negative inflation differential with the rest of the world." It said this happy outcome will re-enthuse foreign investors, stabilise markets and secure financial stability on an enduring basis.
Retail inflation spiked to 7.41 per cent in September, remaining above central bank’s upper tolerance level of 6 per cent for the ninth month in a row.
With inflation remaining above the 6 per cent level, RBI, now, will have to give a report to the central government giving reasons for failure to contain inflation at 4 per cent with a bias of 2 per cent on either side.
"While the persistence of headline CPI (Consumer Price Index) inflation above the tolerance band for three consecutive quarters (up to September) will trigger mandated accountability processes, monetary policy remains focussed on realigning inflation with the target," the article said.
On September 30, RBI's Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, announced a 50 basis point hike in the repo rate to 5.9 per cent.
The rates for the standing deposit facility (SDF) and the marginal standing facility (MSF) were also raised by 50 basis points to 5.65 per cent and 6.15 per cent, respectively.
The central bank decided to withdraw accommodative stance while supporting growth. He mentioned that the real GDP growth for FY23 is projected at 7 per cent. The RBI cut its economic growth projection to 7 per cent for FY22-23 from an earlier estimate of 7.2 per cent.