Despite the easing of inflation in the last two months due to strong deflation in vegetables, headline inflation excluding vegetables has been rising well above the upper tolerance band and may remain elevated, especially with high core inflation pressures. Therefore, inflation remains a major risk to the outlook.

The Monetary Policy Committee of the Reserve Bank of India (RBI) has increased the policy repo rate to 6.50% to control inflation and support growth, with a target of 4% inflation within +/- 2%. The increase is aimed at anchoring inflation expectations and improving medium-term growth prospects. The domestic economy is expected to remain strong.

The domestic economic activity is expected to remain resilient, supported by sustained focus on capital and infrastructure spending in the Union Budget 2023-24 and continuing fiscal consolidation, which creates space for private investment.

The MPC believes that further calibrated monetary policy action is necessary to keep inflation expectations anchored, break core inflation persistence and strengthen medium-term growth prospects. The MPC has therefore decided to increase the policy repo rate and remain focused on withdrawal of accommodation to ensure that inflation remains within the target and supports growth.

Fibre2Fashion News Desk (RKS)