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11th December 2023 (10 Topics)

Falling behind

Context:

Recently released Consumer Confidence survey by RBI has highlighted the consumers’ thought process and glooming economic slowdown with future concerns.

MPC's Decision on Interest Rates

  • GDP Growth Forecast: MPC holds benchmark interest rates steady despite warning of food price shocks.Raises full-year GDP growth forecast but acknowledges inflation risks.
  • Concerns raised: about policymakers potentially falling behind the curve on anchoring inflation expectations.
  • Future Concerns: Retail inflation softens, but MPC anticipates acceleration in November-December. RBI's inflation expectations survey indicates households expect higher inflation, challenging the anchoring of price gains.

Consumption Challenges

  • Causes of rise:Despite interest rate hikes, consumption struggles, attributed to high inflation affecting discretionary spending.
  • Rising Discontent:Consumer confidence survey shows negative sentiments on current and future price conditions.
  • Policy challenges: MPC faces the challenge of balancing price stability with sustaining GDP growth and employment.

Role of the MPC

  • Balancing Economic Growth: MPC's task is to balance economic growth and price stability amid inflation risks.
  • Highlight concerns: that erosion of purchasing power could offset benefits of GDP and employment expansion.
  • Way forward: The dissonance in interest rate decisions and growth projections raises questions about the effectiveness of current policies.
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