InvestorQ : Do you think that the RBI has now moved from boost growth to controlling inflation?
Katherine Gonsalves made post

Do you think that the RBI has now moved from boost growth to controlling inflation?

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rhea Babu answered.
2 months ago
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In a sense, the special MPC meet in May 2022, which raised repo rates by 40 bps and CRR by 50 bps have been a clear signal that the RBI is shifting its stance from boosting growth to controlling inflation. Like the Fed, which amplified the rate hikes with the bond book unwinding, the RBI has amplified the rate hikes with supplementary CRR hikes. In a sense, the RBI has prepared the markets for a series of rate hikes in 2022

The reason for this shift is not hard to fathom. For instance, the surge in consumer inflation has been relentless in India. Recently, it surged from 6.95% in Mar-22 to 7.79% in Apr-22. It was a mix of food inflation and core inflation pushing up headline inflation. What is also means is that the RBI can no longer be oblivious about rising prices. It is not enough for the RBI to be hawkish, but they must tell the markets that they are in inflation control mode.

Does it mean that growth takes a back seat? Let me put it this way that, inflation takes the front seat. With headline Inflation at 7.79% and core inflation at an 8-year high of 7.24%, the RBI was left with little choice. But, RBI can take solace from the fact that the MOM IIP number has surged to 12.5%. That shows that problems like the Ukraine war and China lockdown have been taken in the stride. That allows RBI to be aggressive on rate hikes.

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