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  3. Measures taken by RBI and govt will squeeze duration of high inflation: Finance ministry

Measures taken by RBI and govt will squeeze duration of high inflation: Finance ministry

13 May 2022 Evaluate

The finance ministry has said that measures taken by the RBI and government will squeeze the duration of high inflation fuelled by global factors. It said retail inflation has been trending above Reserve Bank's upper tolerance level of 6 per cent for the past three months. While inflation is expected to be elevated in 2022-23, mitigating action taken by the government and RBI may reduce its duration. It also said evidence on consumption patterns further suggests that inflation in India has a lesser impact on low-income strata than on high-income groups.

The ministry stated that RBI in an off-cycle announcement earlier this month hiked the key repo rate -- at which it lends short term money to banks -- by 0.40 per cent to 4.40 per cent to tame inflation. This was the first rate hike since August 2018 and the sharpest in 11 years. Further, it said, since aggregate demand is recovering only gradually, the risk of sustained high inflation is low. Seen over a longer time horizon, it said inflation in India's economy has not been as much a challenge as is sensed from month-to-month changes.

Notwithstanding the presence of inflationary headwinds, it said the capex-driven fiscal path of the government, as laid down in budget 2022-23, will help the economy post a near 8 per cent growth in real GDP for the current year, it said. With regard to forex reserve, it said the reserve was at a comfortable level of $597.7 billion, providing an import cover of about 11 months for financing investment and consumption in the country. It added that the reserves have been steadily declining under pressure from outflow of foreign portfolio investments responding to monetary tightening by central banks in advanced economies.

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