August 12, 2022
Indian Economy: Inflation hit and  billion outflow

Indian Economy: The Indian economy is currently battling high inflation while India is facing a capital outflow of $13.3 billion in the past few months.

Reserve Bank Governor Shaktikanta Das has said the good thing is that the financial sector is well capitalized and India’s foreign exchange reserves provide a defense against global spillovers. He said the real GDP growth forecast for 2022-23 is placed at 7.2 per cent with the first quarter at 16.2 per cent, the second quarter at 6.2 per cent, the third at 4.1 per cent and the fourth at 4.0 per cent with broadly balanced risks. However, he cautioned that the risks from the Russo-Ukraine war remain.

inflation will remain

RBI Governor has said that retail inflation remains uncomfortably high and inflation is likely to remain above 6 per cent. He said the inflation forecast for 2022-23 has been retained at 6.7 per cent, 7.1 per cent in the second quarter, 6.4 per cent in the third and 5.8 per cent in the fourth. This will also happen if the risks are evenly balanced, with a normal monsoon in 2022 and the average crude oil price at $105 a barrel. CPI inflation for the first quarter of 2023-24 is estimated at 5.0 per cent.

He said inflation is at its peak and will moderate, but at the moment it is at an unacceptably high level. Das said foreign exchange reserves remain strong and we will deal with additional volatility in the exchange rate. When asked about hike in repo rates, he said a hike of 50 bps is the new normal and global central banks have recently increased their respective interest rates by 75 to 100 bps.

As inflation remains above the Reserve Bank of India’s target of 6 per cent, the Monetary Policy Committee today unanimously decided to raise the repo rates by 50 basis points to 5.4 per cent with immediate effect. RBI Governor Shaktikanta Das announced the financial year GDP growth for 2013 has been maintained at 7.2 per cent while inflation for the year 2022-23 is projected at 6.7 per cent. Experts say that since commodity prices, including crude oil, have softened, it is possible that inflation may cross the peak level and move downwards. Hopefully RBI will not be too aggressive in its subsequent policy meetings and more data driven based on inflation data.

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