Boxed in – RBI, Repo Rate and Inflation | 3rd October 2022 | UPSC Daily Editorial Analysis
What is the article about?
- Recently, The Reserve Bank of India (RBI) has hiked the repo rate by 50 basis points to 5.90%, the fourth straight increase in the current cycle, to tame sustained above-target retail inflation rate.
Relevance:
- GS3: Indian Economy;
- Prelims: Inflation, RBI, Monetary Policy.
Analysis:
- Monetary policymakers were left with little choice but to raise interest rates by 50 basis points, as a bout of extreme volatility in international financial markets combined with persistently high domestic retail inflation to threaten macroeconomic stability, globally and in India.
- RBI Governor Shaktikanta Das cited the ‘aggressive monetary policy actions and even more aggressive communication from advanced economy central banks’ as a third shock — following the pandemic and Russia’s invasion of Ukraine — which he said had thrust the ‘global economy into the eye of a new storm’.
- “Emerging market economies, in particular, are confronted with challenges of slowing global growth, elevated food and energy prices, spillovers from advanced economy policy normalisation… and sharp currency depreciations,” Mr. Das explained, elaborating on the external challenges confronting emerging economies, including India.
- The rupee too has been under pressure, weakening by more than 7% against the dollar since the start of the current fiscal year in April. And this has added upward pressure to price stability by way of imported inflation.
Imported inflation:
|
- The RBI’s September issue of the Monetary Policy Report in fact pertinently observes that the ‘second-round effects of low growth and high inflation globally could keep domestic inflation at elevated levels even beyond eight quarters, necessitating appropriate monetary actions to anchor inflation expectations’.
- The central bank’s own projections, in fact, do not anticipate a slowing in India’s retail inflation below its upper tolerance threshold of 6% till the January-March quarter.
- These include the likelihood of higher pass-through of input costs by service providers on increased demand, as well as upside risks to food prices from both the lower kharif output of rice and pulses, and the unseasonably excess spells of rainfall in some regions that have pushed up the prices of vegetables.
Way Forward:
- With the RBI’s latest surveys of households’ inflation expectations and consumer confidence too signalling that price pressures will continue to restrain consumption, inflation control will have to remain the top policy priority.
Recent Articles
- India-Canada Relations: A Comprehensive Analysis of History, Ups and Downs, and Current Challenges
- World Heritage Sites in India Under Threat: A Recent Overview
- 100 Most Important Topics for Prelims 2024
- Most Important Tribes in News 2024
- Most Important Index in News 2024
- Geography 2024 Prelims 365
- Government Schemes & Bodies 2024 Prelims 365
- Society 2024 Prelims 365
- Economy 2024 Prelims 365
- Polity 2024 Prelims 365
Popular Articles
- UPSC CSE 2023 Mains Essay Paper Model Answers
- UPSC CSE 2022 Mains GS 1 Paper Model Answers
- Storage, Transport & Marketing of Agricultural Produce & Issues & Related Constraints.
- Static Topics Repository for Mains
- Anti-Globalization Movement
- UPSC CSE 2023 Mains GS 1 Paper Model Answers
- UPSC CSE 2022 Mains GS 4 Paper Model Answers
- UPSC CSE 2023 Mains GS 2 Paper Model Answers
- PDS: objectives, functioning, limitations, revamping
- Achievements of Indians in Science & Technology
Popular Topics
ART & CULTURE
CASE STUDIES
COMMITTEES & SUMMITS
DISASTER MANAGEMENT
ECONOMICS
ECONOMICS PREMIUM
ECONOMICS STATIC
ECONOMIC SURVEY
EDITORIAL
ENVIRONMENT & ECOLOGY
ENVIRONMENT PREMIUM
ETHICS
GEOGRAPHY
GEOGRAPHY PREMIUM
GEOGRAPHY STATIC
HEALTH
HISTORY
HISTORY PREMIUM
HISTORY STATIC
INDIAN POLITY
INDIAN POLITY PREMIUM
INDIAN POLITY STATIC
INTEGRITY & APTITUDE
INTERNAL SECURITY & DEFENSE
INTERNATIONAL RELATIONS
LITE SUBSCRIPTION PREMIUM
MAINS
MAINS CORNER PREMIUM
PLUS SUBSCRIPTION PREMIUM
POLITY & GOVERNANCE
PRELIMS
PRELIMS CURRENT AFFAIRS MAGAZINE
PRO SUBSCRIPTION PREMIUM
REPORTS
SAMAJHO'S CORNER PREMIUM
SAMAJHO ANALYSIS
SAMAJHO CORNER PREMIUM
SCIENCE & TECHNOLOGY
SELF PREPARATION
SMAP ANSWER WRITING
SOCIETY
SPR
SYLLABUS
TELEGRAM
YOJANA GIST
You might also be interested in:
prev
next