Measures taken by the Reserve Bank of India (RBI) and the government will reduce the period of high inflation in FY23, which is largely due to high crude and edible oil prices through import channels, the finance ministry said in a report.
“Also, since aggregate demand is only slowly recovering, the risk of sustainable high inflation is low,” the finance ministry said in its monthly economic review in April.
India’s retail inflation hit an 8-year high of 7.79% in April, official data showed on Thursday.
Despite the presence of inflation-related headwinds, the government’s capex-driven fiscal path set out in the 2022-23 budget will help the economy grow to about 8% of real GDP for the current year, the ministry report said.
Regarding foreign exchange reserves, it said that as of April 29, reserves were at a comfortable level of $ 597.7 billion, providing about 11 months of import cover to finance investment and spending in the country.
Reserves continue to decline under the pressure of outflows of foreign portfolio investments, in response to the central bank’s financial austerity in developed economies.
“Over the long term, inflation in the Indian economy has not been as challenging as it seems from month-to-month fluctuations. CPI inflation averaged 5.5% in FY22, 50 basis points below the upper limit of the RBI MPC inflation band and less than 6.2% for FY21. Although inflation is expected to rise in 2022-23, easing measures taken by the government and the RBI could shorten its duration, ”the ministry said in a report.
In early May, most of the major central banks, including the US Federal Reserve and the Bank of England, also raised their benchmark rates to curb rising inflation.
Rising bond yields show that markets have already set a price target for policy rate hikes, including excess liquidity absorption, as well as expected rates towards the end of the year, the report said.
Global growth observers, as they reflect their slower growth projections, also have reason to tighten global monetary policy to calm global inflation, it said.