Headline inflation topped estimates with a 6.52% reading last month, breaching the top-end of RBI’s target for the first time in three months.
The global economic system today is staring in the eyes of a deadly storm amidst a global pandemic that has affected millions of lives and livelihoods, a bounce back of high inflation, heightened uncertainty due to geopolitical tensions and a rollback of ultra-accommodative policy support across the globe, the RBI said in its latest bulletin.
The uncertainty around the actions and stance by the US Federal Reserve will have a detrimental impact on the aggregate demand in India, it said.
Making it clear that the article published in the monthly bulletin does not represent the RBI views, the paper also asked major central banks to be circumspect on their actions and communication, saying the same have a bearing on emerging markets.
Changes in the monetary policy stance of the US Federal Reserve tend to impact the Indian economy, altering domestic output and inflation, it said.
Supply responses and cost conditions are poised to improve even though inflation witnessed a rebound in January, the bulletin in its “State of the Economy” chapter, adding that the union budget’s focus on capital expenditure is expected to crowd-in private investment, strengthen job creation and demand and raise India’s potential growth.HSBC expects inflation to tread slightly higher than the Reserve Bank of India’s forecast at 5.4% in the year starting April 1. Core inflation, which strips out volatile food and fuel prices and is a major concern for policymakers, is estimated to come in at 5.5% in their view.