9th October 2023 (10 Topics)
2
Oct
3
Oct
4
Oct
5
Oct
6
Oct
7
Oct
9
Oct
10
Oct
11
Oct
12
Oct
13
Oct
14
Oct
16
Oct
17
Oct
18
Oct
19
Oct
20
Oct
21
Oct
23
Oct
24
Oct
25
Oct
26
Oct
27
Oct
28
Oct
30
Oct
31
Oct
Tightrope walk
Context:
Reserve Bank is facing a dilemma as rising inflation threatens stability, but concerns over economic growth and external vulnerabilities complicate interest rate decisions.
RBI's Dilemma
- Inflation Warning vs. Unchanged Rates: The RBI's Monetary Policy Committee (MPC) left interest rates unchanged despite warning of high inflation risks, indicating a tough spot
- Inflation Acceleration: Inflation surged in Q2, surpassing RBI's projections, and MPC raised Q2 inflation projection, suggesting potential underestimation.
- Temporary Respite Hopes: MPC hopes for short-term relief from lower LPG and vegetable prices, with a readiness to use Open Market Operations if needed.
Balancing Growth and Inflation
- Unwillingness to Raise Rates: RBI's reluctance to increase rates shows concerns about fragile economic growth despite inflation threats.
- Doubts over GDP Growth: Doubts about the accuracy of GDP growth estimates and cautious forecasts indicate economic uncertainty.
- External Risks: Weak goods exports, erratic monsoon, and a weakening rupee pose risks to the RBI's 6.5% GDP growth projection for FY24.
Risk of Imported Inflation
- Weakening Rupee: The rupee's 0.7% depreciation since August increases the risk of importing inflation and external vulnerabilities.
- Question of Rate Hike: RBI must consider raising rates to address these risks and maintain economic stability.
- External Sector Vulnerabilities: Failing to raise rates could exacerbate inflation and external sector vulnerabilities, warranting a cautious approach.
You must be logged in to get greater insights. click here to login
Courses
Study
Notes
Home
Resources
More
