Persistent Core Inflation May Affect Retail Inflation Figures: Reserve Banks

Persistent Core Inflation May Affect Retail Inflation Figures: Reserve Banks

RBI reiterated that Indian economy and domestic financial system remain resilient.(File)


India’s consumer price index (CPI) inflation has moderated, but persistent and widening core inflation could continue to exert upward pressure, the Financial Stability Report released today said. for future key figures.

The Financial Stability Report includes contributions from all the financial sector regulators in the country and is published biennially by the RBI on its website.

India’s headline retail inflation fell to an 11-month low of 5.88% in November from 6.77% in the previous month. Excluding volatile food and energy components, core inflation was between 6% and 6.26% in November, according to three economists’ estimates, compared with 5.9% to 6. .3% in October.

“Monetary policy actions are expected to bring inflation into a bearable range and move closer to target while anchoring inflation expectations,” the RBI said.

The RBI sets an inflation target at 4% with a tolerance margin of two percentage points on each side. According to RBI estimates, annual inflation will slow to 5.9% from January to March next year and 5% from April to June 2023 but will increase to 5.4% over the next three months.

The RBI has raised its policy rate by 225 basis points since May to 6.25% to tame inflation with most economists expecting a further 25 basis points in February.

The central bank reiterated that despite the challenging global environment and ensuing headwinds, the Indian economy and the domestic financial system remain resilient.

However, the region outside of India is facing strong global headwinds due to increased global recession risks, still high commodity prices and volatility in capital flows, the FSR said. .

India ran a current account deficit of 4.4% of GDP in the second quarter of 2022/23, largely due to a higher trade deficit.

With stable net foreign direct investment inflows and a resumption of investment flows as of July 2022, the RBI said the current account deficit would be “comfortably financed,” the RBI said.

The RBI said India’s banking sector is stable thanks to improved profitability and asset quality, with an appropriate level of capital and liquidity buffers.

RBI said the ratio of total bad assets of all banks could improve from 5% in September to 4.9% in September 2023 under the baseline scenario.

However, if the macroeconomic environment deteriorates to a moderate or severe stress scenario, the compound NPA ratio could rise, it warned.

(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)

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