RBI Should Bat For Growth Now
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.
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By Linus Garg
First publised on 2022-12-14 09:17:06
About the Author
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.
View all posts by this Author
For the
first time this year, retail inflation had slipped to 5.9%, just below the
upper limit of the tolerance band set by the RBI. With winter setting in and
supplies improving, the sharp fall in prices of vegetables has eased the
pressure on the food price index which has gone down to 4.7% in November from
7% in October. But core inflation is still at 6% and is showing no signs of
easing. Other economic indicators are also not comforting. Sales of consumer
durables are not looking up for the last four months and contracted by a huge
13.4% in November. Manufacturing remains a cause for concern and shrank by 5.6%
in October. With the global slowdown now clear, exports are also showing a
decline with new orders hard to come by. Domestic demand remains subdued and is
unlikely to perk up in the near future.
Considering
all this, the MPC of the RBI must now seriously bat for growth and maintain
status quo on key policy rates. It has already hiked interest rates by 2.25
percentage points in just over half a year and with inflation showing signs of easing;
it is already ahead of the curve. The effect of cumulative interest rate hikes
will be will come into play more forcefully in the next quarter. It will lead
to further slowdown in growth. With the US Fed already indicating that it will
not go in for successive and high hikes despite strong inflation in the US, the
RBI should also tone down its aggressive stance. It should now wait for fiscal policy to
tackle inflation further (since it is mainly fuelled by supply side factors) and
then take a considered decision on policy rates. For, since inflation is now
under control, the focus should once again be on growth.
