India inflation path shifting down more favourably than hoped: RBI

#Economy, #India, #inflation, #RBI, #Reserve Bank of India

The softening of prices of various food items is likely to extend into the third quarter and contain the upside price pressures on headline inflation stemming from fuel and core prices, the central bank said in its bulletin on Thursday.

“The trajectory of inflation is shifting down more favourably than anticipated,” the Reserve Bank of India (RBI) said.

“As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy,” it added.

The central bank’s monetary policy committee has kept interest rates at record lows since middle of 2020 and vowed to keep the policy accommodative until economic recovery was achieved on a durable basis.

India’s retail inflation eased to a four-month low of 5.30% in August on softer food prices as supply-side constraints eased following the lifting of pandemic-related restrictions.

The RBI said the fall in August inflation had vindicated the monetary policy committee’s call for treating the May price shock as transitory.

”The task now is to consolidate these gains and carry them forward into Q4 as well,” the central bank wrote.

The RBI said exports had outstripped pre-pandemic levels and could help lead to a higher growth trajectory for the economy.

India’s August merchandise exports rose nearly 46% to $33.46 billion, taking the total exports so far this fiscal year to $164.10 billion, latest data shows.

”The pace of export growth has actually sustained and accelerated in the pandemic, emboldening the setting of an ambitious target of $400 billion for 2021/22 and $1 trillion by 2027-28,” the bulletin said.

The RBI also said that imports were poised to catch up, although private consumption and fixed investment were lagging.

”The plateauing of infections and faster pace of vaccination is likely to hasten the convergence to pre-pandemic levels in various sectors,” the RBI said.

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