BALANCE BETWEEN GROWTH & INFLATION: ECONOMY

NEWS: Balance between growth and inflation is unsettled, says RBI Governor Das


WHAT’S IN THE NEWS?

Balancing inflation and growth with strategic tools, reducing inflation to sustainable levels for economic stability.FY25 GDP growth revised to 6.6% (temporary factors); tight liquidity due to tax outflows, FPIs, and seasonal cash demand.

Monetary Policy and Inflation-Growth Balance:

  • RBI focuses on balancing inflation and economic growth using strategic policy tools.
  • Flexible inflation-targeting framework is key for long-term stability.
  • Reducing inflation to sustainable levels is crucial for balanced growth.
  • Timely actions are essential for effective policy outcomes.

FY25 GDP Growth Projections Reduced:

  • Revised from 7.2% to 6.6% due to temporary factors, not structural trends.
  • Earlier high growth rates (8%) included post-pandemic rebound effects.
  • H2 FY25 shows recovery with projections of 6.9%-7.3% growth.

Liquidity Challenges:

  • Tight conditions anticipated due to:

·         Tax outflows (direct taxes and GST).

·         Increased currency circulation (agricultural credit and harvest season).

·         Foreign Portfolio Investor (FPI) exits.

  • Temporary CRR increase normalized.

Growth and Inflation Dynamics:

  • Q2 GDP growth slowed, inflation surged (food prices, weather impact).
  • September and October food inflation exceeded expectations.
  • RBI’s immediate focus: bring inflation closer to the target.

GDP Estimate vs. Q2 Data Differences:

  • Demand-side: reduced investment activity.
  • Supply-side: manufacturing downturn due to weak sales and urban demand impact.
  • Businesses rely on existing capacity, suppressing new investments.

Secured Overnight Rupee Rate (SORR):

  • A new benchmark by FBIL integrates secured transactions and TREPS, replacing older indices.
  • Provides a comprehensive and accurate market benchmark.

Tariff War Implications:

  • Retaliatory measures (e.g., currency devaluation, tariffs) could follow.
  • Broader economic impacts make isolated effects uncertain.

Source : https://www.thehindu.com/business/balance-between-growth-and-inflation-is-unsettled-says-rbi-governor-das/article68955319.ece#:~:text=We%20have%20given%20the%20numbers,growth%20also%20to%20pick%20up.