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Food prices a challenge to eventual reduction in inflation: RBI policy minutes

According to the minutes of the RBI’s monetary policy meeting held earlier this month, pressures in food prices are disrupting the ongoing disinflation process in India, and creating challenges in ultimately bringing the inflation trajectory back to the 4 percent target. Is.

Unexpected supply-side shocks from adverse climate events and agricultural production as well as geopolitical tensions and their impact on trade and commodity markets have added uncertainties to the outlook, the minutes released on Friday said.

The RBI generally holds six bi-monthly meetings in a financial year, where it deliberates on interest rates, money supply, inflation outlook and various macroeconomic indicators. The other five meetings are scheduled for June 5-7, 2024; August 6-8, 2024; October 7-9, 2024; December 4-6, 2024; and February 5-7, 2025.

RBI is currently focusing on bringing down inflation to the target of 4 per cent on a sustainable basis.

“Monetary policy should continue to be actively disinflationary to ensure full transmission of inflation expectations. The MPC will remain steadfast in its commitment to bring inflation within target. The MPC believes that durable price stability will set a strong foundation for a period of high growth,” according to the minutes of the meeting.

Retail inflation in India is at the RBI’s comfortable two-six per cent level, but above the ideal 4 per cent scenario. In March it was 4.85 percent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to control its inflation trajectory well.

On expected lines, RBI kept the policy repo rate unchanged at 6.50 per cent for the seventh consecutive time. Repo rate is the interest rate at which RBI lends to other banks.

Barring the latest disruptions, the RBI has raised the repo rate by a cumulative 250 basis points to 6.5 per cent from May 2022 in the fight against inflation. Raising interest rates is a monetary policy tool that generally helps to suppress demand in the economy, thereby helping to decline the inflation rate.

Coming back to the minutes of the monetary policy meeting, it was noted that domestic economic activity remains resilient, supported by strong investment demand and upbeat business and consumer sentiments. The domestic economy is experiencing strong momentum

According to the second advance estimate, real gross domestic product (GDP) grew at 7.6 per cent in 2023-24 on the back of a surge in domestic demand.

According to official data of India, the country’s growth rate stood at 8.4 percent during the October-December quarter of the financial year 2023-24 and the country remained the fastest growing major economy. The Indian economy grew by 7.8 per cent and 7.6 per cent during the last two quarters – April-June and July-September.

India’s economy is expected to grow by 7.2 percent in 2022-23 and 8.7 percent in 2021-22 respectively.

According to the latest World Economic Outlook of the International Monetary Fund, India will remain the fastest growing economy among major economies in 2024.

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