Ashima Goyal, a member of the RBI Monetary Policy Committee (MPC), stated that the government’s supply-side policies in conjunction with a flexible inflation-targeting system have kept the rate of price growth lower than that in other nations, and that inflation is expected to decline over the course of the year.
Even at this time of significant negative external supply shocks, government supply-side policies coordinated with a flexible inflation targeting system have kept Indian inflation rates lower than global norms and our own historical averages. This minimizes overheating of demand and grounds inflation expectations because nominal policy rates rise with inflation to maintain an expected real positive rate under inflation targeting.
The Reserve Bank of India (RBI) has raised its benchmark repo rate by 250 basis points since May last year with expectations of another 25 basis points hike to 6.75 per cent in April before hitting pause until year-end.
The RBI lowered the consumer price inflation (CPI) forecast to 6.5 per cent for the current fiscal from 6.7 per cent. India’s retail inflation in January was 6.52 per cent. Asia’s third-largest economy recorded year-on-year growth of 4.4 per cent in October-December, down from 11.2 per cent a year back and 6.3 per cent in the preceding quarter.
Noting that higher GDP growth reduces deficit and debt ratios as the denominator is higher and tax revenue buoyancy rises, she said India’s debt GDP ratio has already fallen from a peak of about 90 in 2020-21 to the mid-eighties in 22-23.
The RBI has been tasked to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side.