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RBI says earlier rate hike needed to curb inflation, protect growth

Swati Bhat

MUMBAI (Reuters) – The Reserve Bank of India said on Friday it will have to bring forward its monetary policy to combat stubborn inflation and protect India’s medium-term growth. The world’s fifth largest economy.

Inflation in India has been above the central bank’s tolerance level since January, prompting it to raise interest rates by a total of 23 ) basis points for the current cycle . The bank is widely expected to raise by 25 to 50 another basis point at its next meeting at the end of this month.

“At this critical juncture, monetary policy must act as a nominal anchor for the economy as it charts a new growth trajectory,” the RBI said in an article on the state of the economy,

“Monetary policy action ahead of schedule could firmly anchor inflation expectations and reduce medium-term growth sacrifices.”

RBI said in August 2022 The inflation reading came in at 7%, in line with its forecast that inflation had peaked in April and will narrowly decline over time.

However, despite modest relief provided by fuels and core components such as transport and manufacturing, food price pressures, mainly from grains, have picked up again, the bank said.

“We maintain our view that inflation momentum slowed in Q3 and turned slightly negative in Q4. Base effects were favorable in 2022H2-23, inflation should moderate, although upside risks remain.”

As the festive season approaches, India’s gross Demand is firm and expected to expand further, while domestic financial conditions remain supportive of growth drivers.

It also forecasts that the country’s current account deficit will remain within 3% of GDP in the current fiscal year ending in March.

“This deficit sequence is ideal for financing as portfolio returns and foreign direct investment remain strong,” it said.



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