Inflation and Economic Growth- June 2023

Inflation and Economic Growth

• Bringing down inflation and stabilising inflation expectations can revive consumer spending, boost corporate profitability and spur growth in private capital expenditure, the Reserve Bank of India said on Friday.
• The RBI said the recent national accounts data and corporate results show that inflation is slowing down personal consumption expenditure, which in turn, is moderating corporate sales and holding back private investment in capacity creation.
• “Bringing down inflation and stabilising inflation expectations will revive consumer spending, boost corporate revenues and profitability, which is the best incentive for private capex,” RBI said in the ‘State of the Economy’ article, published in the central bank’s June bulletin released Friday.

Policy Repo Rate & Inflation

• In the June policy, the six-member Monetary Policy Committee (MPC) left the repo rate unchanged at 6.5 per cent for the second time. The MPC expressed its view that inflation’s trajectory warrants ‘continuous vigil’.
• The RBI raised the repo rate by 250 basis points (bps) between May 2022 and February 2023 to rein in inflation, which was above its comfort zone.
• Retail inflation or consumer price index-based inflation (CPI), which averaged 6.7 per cent in in 2022-23, eased to 4.25 per cent in May from 4.7 per cent in April.
• In the minutes of the June MPC meeting released on Thursday, RBI Governor Shaktikanta Das said, “Our job is only half done, having brought inflation within the target band. Our fight against inflation is not yet over. We need to undertake a forward-looking assessment of the evolving inflation-growth outlook and stand ready to act, if the situation warrants.”
• The RBI article said that it is axiomatic that the path to high but sustainable inclusive growth has to be paved by price stability. “Once this is realised, the trade-offs and dilemmas confronting the conduct of monetary policy fade away,” the article said.

• In the June policy, the six-member Monetary Policy Committee (MPC) left the repo rate unchanged at 6.5 per cent for the second time. The MPC expressed its view that inflation’s trajectory warrants ‘continuous vigil’.
• The RBI raised the repo rate by 250 basis points (bps) between May 2022 and February 2023 to rein in inflation, which was above its comfort zone.
• Retail inflation or consumer price index-based inflation (CPI), which averaged 6.7 per cent in in 2022-23, eased to 4.25 per cent in May from 4.7 per cent in April.
• In the minutes of the June MPC meeting released on Thursday, RBI Governor Shaktikanta Das said, “Our job is only half done, having brought inflation within the target band. Our fight against inflation is not yet over. We need to undertake a forward-looking assessment of the evolving inflation-growth outlook and stand ready to act, if the situation warrants.”
• The RBI article said that it is axiomatic that the path to high but sustainable inclusive growth has to be paved by price stability. “Once this is realised, the trade-offs and dilemmas confronting the conduct of monetary policy fade away,” the article said.

Policy Repo Rate & Inflation

• In the June policy, the six-member Monetary Policy Committee (MPC) left the repo rate unchanged at 6.5 per cent for the second time. The MPC expressed its view that inflation’s trajectory warrants ‘continuous vigil’.
• The RBI raised the repo rate by 250 basis points (bps) between May 2022 and February 2023 to rein in inflation, which was above its comfort zone.
• Retail inflation or consumer price index-based inflation (CPI), which averaged 6.7 per cent in in 2022-23, eased to 4.25 per cent in May from 4.7 per cent in April.
• In the minutes of the June MPC meeting released on Thursday, RBI Governor Shaktikanta Das said, “Our job is only half done, having brought inflation within the target band. Our fight against inflation is not yet over. We need to undertake a forward-looking assessment of the evolving inflation-growth outlook and stand ready to act, if the situation warrants.”
• The RBI article said that it is axiomatic that the path to high but sustainable inclusive growth has to be paved by price stability. “Once this is realised, the trade-offs and dilemmas confronting the conduct of monetary policy fade away,” the article said.

Read about Monetary Policy Statement, click here

Practice Questions for Prelims

Inflation can be countered by increasing which of the following?
1. CRR
2. Reverse Repo Rate
3. SLR|
4. Bank Rate

Choose the correct answer using the codes below:
a) 1 and 4 only
b) 2 and 3 only
c) 1, 2 and 3 only
d) All of the above

Ans. d

Mains Practice Question

Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (2019)

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