oppn parties Growth Versus Inflation: The Tricky Question Before RBI

News Snippets

  • SP drops two candidates owing allegiance to Azam Khan from Rampur and Moradabad
  • In Assam, a controversy erupted after a picture of UPPL leader Benjamin Basumatary, lying on a stack of Rs 500 notes circulated on social media. UPPL is an ally of the BJP
  • AAP's Jalandhar-West MP Sushil Kumar Rinku joins the BJP. He was the only AAP Lok Sabha MP
  • Supreme Court dismisses Centre's plea to review its 2023 verdict in the PMLA case
  • Close save for passengers as they remain unhurt after the wings of two planes graze at Kolkata airport. Pilots derostered and inquiry ordered by DGCA
  • Bengal BJP leader Dilip Ghosh gets notice from the EC as well as the BJP for making ugly remarks about Mamata Banerjee's parentage
  • Sadanand Vasanth Date, who faught terrorists in the 26/11 attack and was awarded the Preisent's Police medal, has been appointed the head of the NIA
  • Centre will borrow Rs 7.5L cr in the first six months of FY25, nearly 50% of the target for the full year
  • 25 stocks, including SBI, will see same day trade settlements from today in the world's fastest settlement mode in both BSE and NSE
  • Stocks recover smartly on Wednesday: Sensex rises 526 points to 72996 and Nifty 118 points to 22123
  • Tennis: Rohan Bopanna-Matthew Ebden reached the semifinals of the Miami Open
  • IPL: records tumble as SRH beat MI in a high-scoring match. SRH score 277/3 with 18 sixes and Mumbai score 246 with 20 sixes to fall short by 31 runs. Atotal of 38 sixes, highest in an IPL match were hit and both teams combined to score 523 runs, the highest aggregate in an IPL match
  • Amul will launch fresh milk in the US
  • IPL: RCB beat Punjab by 4 wickets as Kohli and Karthik shine with the bat
  • India strongly objected to German foreign office remarks over the arrest of delhi CM Arvind Kejriwal, called it "biased assumptions"
Delhi Lt Governor Vinai Kumar Saxena says government cannot be run from jail, hints at President's Rule in the capital ////// In a dangerous incident, the wings of two planes grazed while taxiing on the runway at Kolkata airport, all passengers were safe but DGCA ordered an inquiry and the pilots were derostered
oppn parties
Growth Versus Inflation: The Tricky Question Before RBI

By Linus Garg
First publised on 2022-11-29 05:46:35

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

As the Monetary Policy Committee of the RBI meets in the first week of December for its bimonthly review of policy rates, the growth versus inflation debate is once again in focus. While inflation seems to be moderating after reaching the peak of 7.8% in April, at 6.77% in October, it is still above the RBI's threshold of 6%. More importantly, core inflation is still high and rising. This means that inflation is not only due to high food and fuel prices but is broad based and as a whole, refusing to go away. Hence, since the apex bank is duty bound to bring it down, it needs to keep raising policy rates to stay ahead of the inflation curve. That this has an adverse effect on growth, already stymied by low demand, is a given. Hence, the MPC has the unenviable task of striking a balance between growth and inflation.

While the economic indicators are positive, yet most analysts have scaled down their earlier estimates of growth of Indian economy from 7% to about 6.5% in FY22. Further, with the global economy facing recession and consequently Indian exports also facing a slowdown, the outlook seems bleak in the short to medium term. WTO has warned that exports are set for further slowdown as its Goods Trade Indicator is at 96.2, lower than the baseline 100, indicating a slowdown. The only bright side is that the US Fed has indicated that its tight money policy and hiking of interest rates will not happen at the speed it was expected to. That will mean that flight of foreign capital from India will also slow down. The other good report is that crude prices have gone down to $81 per dollar and may ease further if Opec+ grouping does not cut production to shore up the falling prices.

Although it is important for the RBI to keep inflation in check and to stay ahead of the inflation curve (it was criticized in the past for having delayed its action in this respect), it is also important not to hike rates too much and too fast as it will hamper growth. If easing crude prices help in reducing inflation, the RBI will have space to slow down its money tightening measures. That would help in pushing for growth.