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India's Monetary Policy in the Face of Rising Inflation

  • Published
    7th Oct, 2023


The RBI's recent policy decision maintains interest rates amidst rising inflation, highlighting challenges and policy considerations amid global economic shifts.

Concerns Over Inflation and External Factors

  • Inflationary Pressures: The RBI's Monetary Policy Committee (MPC) maintained status quo, citing inflation concerns triggered by unpredictable factors like surging food prices and volatile crude oil rates.
  • External Influences: Global central banks, especially the US Federal Reserve, have adopted hawkish policies, affecting capital flows and the strength of the rupee.
  • Monetary Policy Lag: Monetary policy's impact on growth and inflation, exacerbated by fiscal offsets, remains slow and uncertain.

India's Economic Resilience and Inflation Risks

  • Economic Resilience: Despite challenges like rising crude oil prices and a weaker rupee, India's economy has shown resilience.
  • Inflation Forecasts: The RBI raised its inflation projection, mainly due to food price spikes, while core and fuel inflation remained stable.
  • Supply and Weather Risks: Persisting inflation risks in cereals, pulses, and spices, coupled with unpredictable weather patterns, pose concerns for agricultural production.

Policy Outlook and Inflation Expectations

  • Policy Outlook: The RBI has maintained a cautious stance, factoring in both inflation risks and global economic conditions, while keeping its GDP growth outlook at 6.5%.
  • Impact on Growth: Rate hikes, along with global economic slowdown and erratic weather, may impact consumption and agricultural growth.
  • Inflation Expectations: Inflation expectations have been anchored so far, but vigilance is required as volatile crude oil prices and geopolitical factors could pose inflationary challenges.
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