Front-Loading Of Monetary Policy Actions Can Reduce Medium-Term Growth Sacrifice: RBI
Need for monetary policy to keep second-order effects contained and inflation expectations firmly anchored, says RBI.
Inflation remains elevated and above the tolerance level, underscoring the need for monetary policy to keep “second-order effects” contained and inflation expectations firmly anchored, the central bank said.
“Monetary policy has to perform the role of nominal anchor for the economy as it charts a new growth trajectory,” the Reserve Bank of India said in its bulletin, ahead of the Monetary Policy Committee meet scheduled for Sept. 30, 2022. “The focus should be on being time-consistent in aligning inflation with the target.”
“In this context, front-loading of monetary policy actions can keep inflation expectations firmly anchored and reduce the medium-term growth sacrifice.”
The Indian economy continues to tread a path of recovery in spite of some loss of momentum due to global headwinds, the bulletin said. The Indian economy is poised to shrug off the modest tapering of growth momentum in the first quarter of 2022-23, it said.
High-frequency indicators of economic activity indicate continued recovery, albeit at a slower pace in Q2 FY23 amid slowing global economy and inflationary pressures.
Aggregate demand is firm and poised to expand further as the festival season sets in.
Domestic financial conditions remain supportive of growth impulses.
With the late revival and spread of the monsoon to the deficit regions and predictions of a delayed withdrawal, kharif sowing is set to exceed last year’s acreage.
Need to brace up for the impact of the predicted delayed withdrawal of the monsoon.
With base effects being favourable in the second half of FY23, inflation should moderate, although upside risks are in the air.
On the downside, imported inflation pressures are letting up, helped by the stability in the exchange rate, and input costs have eased, which could temper the pass through to selling prices.