India

High Inflation to Last Till September, Hinder Resolve to Revive Economic Growth – Top Indian Bank

New Delhi (Sputnik): To keep its financial system afloat amid the raging pandemic, India’s banking regulator, Reserve Bank of India, has injected liquidity worth $127 billion since February. The bank now finds its hands tied in reducing policy lending rates to support growth, as the benchmark retail inflation has breached its tolerance level.

India’s apex bank RBI said on Thursday that growth in the country’s retail inflation is stymieing the resolve to revive growth amid the Covid-19 pandemic.

Blaming the high inflation on supply chain disruptions caused by the pandemic, the RBI said retail inflation will remain elevated till September this year.

The observations were made in the minutes of the top bank’s Monetary Policy Committee (MPC) meeting held on August 6, but were released on Thursday. Meeting minutes are an official brief of the observations or decisions taken in a meeting.

In the minutes of the Monetary Policy Committee, which decides the key policy rates in the country, RBI Governor Shaktikanta Das has been quoted as saying: “Major drivers of inflation have been supply-chain disruptions resulting from localised lockdown, increase in excise duty and value-added tax on petroleum products, price pressures in protein-rich items and vegetables.”

“Looking ahead, headline inflation is expected to remain elevated in July – September of 2020-21 (April 2020 – March 2021) due to inflationary pressures in both food as well as core inflation,” he added.

The MPC meeting held on August 6 kept the key policy rates – the repo rate and reverse repo rate – unchanged, as any reduction in the interest rates to propel growth would have led to higher inflation in the economy.

India’s retail inflation is already hovering over the upper tolerance limit of 6 percent set by the MPC.

According to data from the federal Ministry of Statistics, retail inflation registered a growth of 6.93 percent in July, while in June it grew by 6.10 percent.

In March, retail inflation was well within the tolerance limit of the MPC at 5.8 percent.

MPC Member Michael Debabrata Patra noted, “Inflation surprises of recent months are undermining the MPC’s actions and stymieing its resolve to do what it takes to revive growth and mitigate the impact of COVID-19 on the economy.”

For Prime Minister Narendra Modi, bringing growth back in the Indian economy is the top priority.

There have been several factors that have been leading to a slowdown of the country’s economy even before the Covid-19 pandemic hit Indian shores.

India’s Gross Domestic Product growth came down to 3.1 percent in January – March this year, registering the lowest growth in the last 12 years.

For the current financial year (April 2020 – March 2021), the Indian economy is projected to slip into recession, with growth contracting by up to 5 percent, as per estimates by various agencies.

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