India’s economy is likely moving into a low inflation regime as supply shocks fade and demand cools, according to a paper co-authored by Reserve Bank of India Deputy Governor Michael Patra.
(Bloomberg) — India’s economy is likely moving into a low inflation regime as supply shocks fade and demand cools, according to a paper co-authored by Reserve Bank of India Deputy Governor Michael Patra.
“Since the second half of 2022-23, there are signs of a transition to a low inflation regime,” wrote Patra, and his colleagues at the central bank, Joice John and Asish Thomas George, in an article released with RBI’s April bulletin Friday. The views are not officially endorsed by the central bank.
“Absent unfavourable idiosyncratic shocks, conditions are right for early signs of grudging disinflation to firm up into a central tendency,” the authors said. The persistence and trend of inflation are gradually declining, suggesting that price expectations are getting re-anchored because of the 250 basis points rate increase since May last year. This warrants for a wait and watch stance on monetary policy, the authors wrote.
READ: India Inflation Drops Within RBI Target as High Rates Hurt
The RBI paused its rate-tightening cycle this month, but Governor Shaktikanta Das warned not to take it as a pivot toward cuts yet as the fight against inflation wasn’t over. In the State of the Economy Report, also a part of the bulletin, the RBI said it remained “steadfast and committed” to its mission of bringing inflation to its medium term target of 4%.
READ: RBI Seen Pivoting to Rate Cuts by Year-End After a Long Pause
The RBI bulletin also said the International Monetary Fund’s 5.9% growth estimate for the Indian economy “might encounter forecast errors, with actual outcomes surprising them positively,” as most recent data suggest the economy remained resilient. RBI’s nowcast model suggested economic activities gathered momentum in February, and real gross domestic product growth for the January-March quarter could be around 5.4%, on track to recover from a surprising dip of 4.4% in the October-December quarter.
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