This Article is From May 27, 2022

Inflation Countervailing Policy When Growth Should've Been Priority: RBI

The Reserve Bank of India's annual report showed that the persistence of high inflation is forcing countervailing monetary policy action at a time when supporting the economic recovery should have been the priority.

Inflation Countervailing Policy When Growth Should've Been Priority: RBI

Reserve Bank of India: High inflation is forcing countervailing monetary policy action, says RBI

The persistence of high inflation is forcing countervailing monetary policy action at a time when supporting the economic recovery should have been the priority, the Reserve Bank of India's annual report showed on Friday.

The Indian economy is relatively better placed to strengthen the recovery underway and improving macroeconomic prospects. Monetary policy remains accommodative but focused on the withdrawal of accommodation, said the RBI, and added that the priority has been assigned to containing inflation within the target as we advance while supporting growth.

That is not a domestic problem but a global one driven by the fallout from the Russia-Ukraine, which has led to a surge in commodity prices and distorted supply chains and shortages in raw materials worldwide.

The report showed that so far this year, more than 40 central banks across advanced and emerging economies have raised policy interest rates and, or scaled 
back liquidity measures.

According to the annual report, natural gas and coal prices reached a record high amid supply constraints and increased demand for electricity as global economic activity revived.

To sum up, the year has brought many challenges, but a recovery is underway despite headwinds, said the RBI.

The future growth path will be conditioned by addressing supply-side bottlenecks and calibrating monetary policy to bring inflation within the target while supporting growth and targeted fiscal policy support to aggregate demand, especially by boosting capital spending, said the central bank.

Indeed, the RBI said that a full recovery in aggregate demand is contingent on a turnaround in private investment.

But the report showed that average inflation, and volatility measured by the standard deviation of the consumer price index (CPI)-based inflation, was lower in 2021-22 than a year ago.

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