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India's disinflation process to be slow, protracted
Context
The Reserve Bank of India (RBI) predicts that India's disinflationary process will be slow and protracted, with the 4% inflation target likely to be attained only in the medium term.
Key Highlights:
- The country's monetary policy committee (MPC), led by the RBI governor, is responsible with keeping inflation at 4% in the medium term and between 2% and 6% in the long run.
- Given the outsized addition to the workforce each year as a result of the 'demographic dividend' in the world's most populous country, RBI authorities cannot be blind to growth worries.
- Given the outsized addition to the workforce each year as a result of the 'demographic dividend' in the world's most populous country, RBI authorities cannot be blind to growth worries.
- Monetary policy: Because financial instabilities can hinder economic growth and hamper monetary policy transmission, the RBI's approach to ensuring the stability of the Indian financial system is critical to our monetary policy conduct.
- The RBI recognises that if there is no price stability, the likelihood of financial turmoil is significant.
What is disinflation?
- Disinflation is a temporary slowing of the pace of price inflation and is used to describe instances when the inflation rate has reduced marginally over the short term.
- Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.
What is the role of RBI in controlling inflation and deflation?
- The RBI uses a number of monetary policy tools to combat inflation and deflation, including the Repo Rate, Reverse Repo Rate, Bank Rate, Open Market Operations, Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), Liquidity Adjustment Facility (LAF), and Market Stabilisation Scheme.
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RBI’s current monetary policy:
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