RBI Paper
Rate hikes since May 2022 helped cut growth, inflation by 160 bps, says RBI staff
This story was originally published at 19:42 IST on 21 October 2024
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NEW DELHI – The Monetary Policy Committee's repo rate hikes of 250 basis points since May 2022 have helped bring down both growth and inflation by 160 basis points, according to a paper by Reserve Bank of India staff.
"The macroeconomic impact of monetary policy on aggregate demand and inflation indicate that the 250 basis points increase since May 2022 has negatively contributed to aggregate demand and headline inflation by 160 bps each till Q2:2024-25 (Jul-Sept), working through various channels of policy transmission," the paper, published Monday, said.
The paper, titled 'Monetary Policy Transmission in India: The Recent Experience', is authored by Deputy Governor Michael Debabrata Patra, Chief General Manager Indranil Bhattacharyya, and research officers Joice John and Avnish Kumar. The views in the paper are those of authors and not the RBI.
In response to high inflation and the prospect of failing to meet its inflation mandate, the MPC began raising the repo rate sharply in May 2022 from 4.00% to 6.50% by February 2023. Since then, the committee has left the repo rate unchanged.
Meanwhile, headline retail inflation--which averaged 7.3% in Apr-Jun 2022--has declined gradually and averaged 4.2% in Jul-Sept, falling below the RBI's medium-term target of 4.0% during the quarter after a gap of nearly five years. GDP growth, on other hand, is forecast to grow 7.0% in Jul-Sept. In the first quarter of FY23, the Indian economy had expanded by 12.8% on the back of a favourable base effect.
The RBI staff paper said it estimated the impact of the rate hikes on growth and inflation using the central bank's Quarterly Projection Model. End
Reported by Siddharth Upasani
Edited by Akul Nishant Akhoury
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