RBI Bulletin: India poised to accelerate economic recovery, fight against inflation will be prolonged

India is poised to consolidate and accelerate the economic recovery over the rest of the year and the fight against inflation will be 'dogged and prolonged', the Reserve Bank of India (RBI) said in its monthly bulletin for October on Monday. The bulletin said that the momentum of real GDP growth is expected to shed the drag embedded in the NSO’s estimates for the first quarter of 2022-23 and move into positive territory in the remaining quarters.
 
As per the bulletin, contact-intensive sectors will likely lead the rejuvenation as the restrictions due to the pandemic are no longer there. Festival-related spending is already boosting consumption demand with positive externalities for other components of domestic demand, the bulletin said.
 
On price rise, the headline said headline inflation is set to ease from its September high on the back of easing momentum and favourable base effects. These positive developments are likely to be driven by the food and beverages, which have undergone repeated shocks in the first half of the year.
 
With 6 per cent plus for over three quarters, inflation has been a concern for the government as well as the central bank, which has been trying to bring it down to its tolerance level which is 2 to 6. In September, the retail inflation was at 7.4 per cent but wholesale numbers eased to 10.7 per cent as against 12.41 per cent in August.
 
The bulletin said that the monetary policy remains focussed on realigning inflation with the target and this may involve two milestones – first, bringing it within the tolerance band and second, lowering it to around its mid-point.
 
This trajectory will likely be gradual in view of the repeated shocks to which inflation has been subjected by both epidemiological and geopolitical causes.
 
"The fight against inflation will be dogged and prolonged, given the long and variable lags with which monetary policy operates, and fraught with uncertainties. 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," the bulletin said.
 
This happy outcome, it added, will re-enthuse foreign investors, stabilise markets, and secure financial stability on an enduring basis.