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RBI indicates inflationary pressure; pitches for structural reforms

30 May 2022 Evaluate

Amid rising inflationary pressure, Reserve Bank of India (RBI), in its annual report, has pitched for structural reforms for sustained economic growth, and asked banks to remain watchful of possible slippages in restructured loans. It also said the number of Rs 2,000 denomination notes fell to 1.6 per cent of the total currencies in circulation as on March 2022 from 2 per cent in the year-ago period. It stressed that the future path of growth would be conditioned by addressing supply-side bottlenecks, calibrating monetary policy to bring down inflation and boosting capital spending.

The central bank said ‘Undertaking structural reforms to improve India’s medium-term growth potential holds the key to secure sustained, balanced and inclusive growth, especially by helping workers adapt to the after-effects of the pandemic by reskilling and enabling them to adopt new technologies for raising productivity’.  It added that the escalation of geopolitical tensions into war from late February 2022 has delivered a brutal blow to the world economy, battered as it has been through 2021 by multiple waves of the pandemic, supply chain and logistics disruptions, elevated inflation and bouts of financial market turbulence, triggered by diverging paths of monetary policy normalisation.

The report said ‘The immediate impact of geopolitical aftershocks is on inflation, with close to three-fourths of the consumer price index at risk. The elevation in international prices of crude, metals and fertilisers has translated into a term of trade shock that has widened trade and current account deficits’. Due to the ongoing Russia-Ukraine war, global commodity prices have moved northwards as supply lines have been severely impacted leading to a rise in worldwide inflation. On the price situation, the report said there is a risk of high Wholesale Price Inflation (WPI) putting pressure on the retail inflation, albeit with a lag.

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