According to an article in the Reserve Bank of India's (RBI) latest monthly bulletin, the monetary policy is in effect and has resulted in a significant amount of disinflation. However, according to the "State of the Economy" paper written by RBI officials, there is still a long way to go before inflation reaches the target of 4% or is even close to it.
The government has mandated the Reserve Bank of India (RBI) to ensure retail inflation based on the Consumer Price Index (CPI) remains at 4 % with a margin of 2% on either side. Inflation during January-February 2023 exceeded the upper tolerance limit of 6 %after a transitory respite during November-December 2022.
The RBI, which effected six back-to-back hikes in the key short-term lending rate (repo) since May 2022 to check high inflation, decided to pause early this month. The cumulative rate hike since May 2022 is 250 basis points.
The retail inflation in March fell to a 15-month low of 5.66 % and came back to the Reserve Bank's comfort level of 6%. The article authored by a team led by RBI Deputy Governor Michael Debabrata Patra noted that the global economic conditions are beset by heightened uncertainty as financial conditions remain volatile and financial markets are on edge. In India, aggregate demand conditions remain resilient, supported by a rebound in contact-intensive services.
Expectations of a bumper rabi harvest, the fiscal thrust on infrastructure, and the revival in corporate investment in select sectors augur well for the economy, it said. "Monetary policy is at work. Substantial disinflation has been achieved, but the road to be travelled stretches ahead till inflation is at or close to the target of 4 %," said the article titled 'State of the Economy' published in RBI Bulletin April 2023
