Stubbornly high inflation is holding back consumer discretionary spending and corporate investments: RBI
high inflation is holding back consumer discretionary spending and corporate investments as well, hence the expectations of lowering of interest rates may be unrealistic.
«Projections indicate that inflation will go up further from the September October 2023 average of 4.9% before it can come down. The objective of aligning inflation with the target on a durable basis is far from assured,» RBI researchers said in the state of the economy report.
There have been clamours for interest rate cuts after RBI paused for five times in a row and following softer inflation prints for September and October.
«Such views imperil the conduct of monetary policy in the pursuit of its goal of durably aligning inflation with the target. These views also undermine the foundations of growth,» the report said.
The November Consumer Price Index was in fact higher at 5.6% against 4.9% in the preceding month, due to higher food prices.
The monetary policy committee had also expressed concerns that ‘recurring food price shocks are impeding the ongoing disinflation’ and rendering headline inflation volatile. This runs the risk of un-anchoring inflation expectations.
The central bank projected inflation at 5.6% for the quarter ending December and 5.4% for FY24. The projection for the first three quarters of FY25 is 4.6%.
The researchers guided by deputy governor Michael Debabrata Patra opined that on a real-time basis, inflation is hurting discretionary consumer spending and this, in turn, is holding back top line growth of manufacturing companies as well as their capex.
«If inflation is not brought back to the target and tethered there, there is a strong likelihood that growth may falter,» they said.
RBI maintains that the views expressed
