RBI Didn't Meet Legally Required Inflation Target: But Tightening Policy Sooner Could've Been "Very Costly"
Although India’s central bank, the Reserve Bank of India (RBI), did not meet its legally required level of Inflation, Shaktikanta Das, who is the Governor of the RBI, stated on Wednesday that tightening the monetary policy too soon could have proven to be “very costly” for the Indian economy.
The Governor claimed that attempts to protect growth were frequently not given the credit they deserved. Shaktikanta Das said to consider the scenario if they had begun the tightening process earlier. He agrees that there has been a lapse in the inflation goal and their ability to keep Inflation under 6% over this period. However, early tightening would’ve had a negative impact on the economy. For the people of this nation, it would’ve been costly, having to pay a considerable price.Â
The Governor argued that the central bank had stopped the Gross Domestic Product (GDP) from altogether declining after it contracted from 2020 to 2021 and that history will assess RBI’s decisions regardless of the current public debate.
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Many different points of view are in place, although it is firmly believed that the average inflation rate for the current Fiscal Year (FY) will be 4.5%. This is particularly true for the early months of this year, in January and February, while examining the inflation trajectory. As measured by the Consumer Price Index (CPI), Inflation was 7.41% in September this year (2022).
In May 2022, the Monetary Policy Committee (MPC) started the tightening cycle. The Repo Rate has since increased to 5.9% by 190 BPS. For 36 months, Consumer Price Index inflation has exceeded the central bank’s 4% goal. Additionally, the price gauge has remained outside the Monetary Policy Committee’s statutory range of 2% to 6% for three consecutive quarters, indicating that the rate-setting committee still needs to achieve its inflation objective.
From April through June, economic growth was only 13.5%, falling short of the central bank’s estimate of 16.2%. TGDP
he Reserve Bank of India cut its estimated Gross Domestic Product growth for the current Fiscal Year (FY) in the previous month by 20 basis points to 7%.
Shaktikanta Das stated that they did not want to sabotage the recovery process; instead hoped for the economy to sail through the coronavirus outbreak’s rough waters and safely land there. They intended for the economy to arrive at the ports safely before attempting to control Inflation.
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