Bikky Khosla | 13 Jun, 2022
inflation showing no sign of taming down, the Reserve Bank of India (RBI) last
week increased the policy repo rate by 50 basis points with immediate effect.
In its off-cycle policy measure, the central bank expressed concern over rising
food prices, with retail
inflation rising further from 7 percent in March 2022 to 7.8 percent in April
2022. The decision is also based on the projection that inflation will remain
above 6 percent through the first three quarters of the current fiscal.
In another major move, the Monetary Policy
Committee (MPC) of the central bank also took the decision to “remain focused
on withdrawal of accommodation to ensure that inflation remains within the
target going forward, while supporting growth.” For quite some time, the RBI
had previously termed the inflationary pressure as ‘transitory’, but this time it clearly dropped the 'accommodative' stance,
which is a welcome.
assessment, the RBI –while expressing concern over high food inflation “led by cereals, milk,
fruits, vegetables, spices and prepared meals” and high fuel prices “driven up
by a rise in LPG and kerosene prices” – cites
that overall system
liquidity remains in large surplus and the Indian economy has witnessed a
broadening recovery during the April-May 2022 period. It also points out that
both urban and rural demand are gradually improving.
Meanwhile, it is really a concern that
the Rupee hit a
new low of Rs 78.04 per US dollar, and according to experts, the currency may
see further devaluation amid high inflationary pressure –both
globally and domestically– and
persistent foreign fund outflows. It is also noteworthy here that while the
weak currency may give our exporters a temporary boost, the sector is unlikely
to benefit much due to supply constraints and rise in cost of inputs.
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