DC Edit | Cautious RBI targets inflation
The Reserve Bank of India-led Monetary Policy Committee (MPC) has once again kept the policy repo rate unchanged at 6.5 per cent. As a mark of abundant caution, the monetary stance also continues to remain focused on withdrawal of accommodation to ensure that inflation aligns to the target, while supporting growth.
Retail inflation hovered around 5.1 per cent during January and February 2024, which is a marginal decline from 5.7 per cent in December 2023. Inflation has come down significantly, it continued to remain above its target of four per cent. Food inflation — which is the most important focus area for the world’s populous country — continues to exhibit considerable volatility impeding the ongoing disinflation process.
Though India has achieved self-sufficiency in rice and wheat, the country is vulnerable to supply-side inflation in food items because of imported items like pulses and edible oil, and vegetable crops which are exposed to vagaries of rainfall. Therefore, MPC’s continued focus on inflation is welcome.
On the growth front, the MPC expects the economy to grow seven per cent in the financial year 2024-25, which is a decent growth rate in a world that is characterised by a slowing economic growth. Another important observation is rural demand catching up with the levels of urban consumption. The pick in the import of capital goods and higher credit flow to the commercial sector hints at a robust industrial growth in the new financial year.
While the headwinds from protracted geopolitical tensions and increasing disruptions in trade routes pose risks to the outlook, foreign investment through both direct and market routes is on the rise. India’s foreign exchange reserves reached an all-time high of $645.6 billion as of March 29, 2024, giving the country enough fighting power to confront global crises.