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11th December 2023 (11 Topics)

Falling behind


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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