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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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