RBI to offer explanation to govt as inflation rises, growth moderates

New Delhi, September 4

The RBI will be submitting an explanatory letter to the Centre next month after inflation continued to breach the 6 per cent upper limit and the quarter one GDP growth figure for fiscal 2022-23 of 13.5 per cent fell short of the central bank’s expectations of 16.2 per cent.

The RBI will convene a meeting of the Monetary Policy Committee (MPC) early next month to prepare the letter to be sent by RBI Governor Shaktikanta Das in his capacity as the MPC chief.

The GDP growth rate for the April-June quarter of 2022-23 has fallen short of expectations, leading to most rating agencies lowering their annual estimates to below 7 per cent for the full financial year during which the country faced very few Covid-related disruptions but dealt with the impact of high fuel and commodity prices and a global economic downturn. “Overall, the growth recovery is not so strong in India. It ideally implies that monetary tightening should not be very aggressive,” said Nikhil Gupta, chief economist at Motilal Oswal Financial Services group.

The government is pointing out that some of the high-frequency indicators augur well for future growth. Indicators of activity in the industrial and services sectors are holding up, urban demand is strengthening and rural demand is gradually catching up. But these are accompanied by worry points such as an uneven monsoon and a one-year high of 8.3 per cent unemployment rate in August. Domestic rating agencies SBI and ICRA are still optimistic of 7 per cent growth, but overseas ones like Nomura and Moody’s are pessimistic. Moody’s projects growth of 7.7 per cent in calendar 2022, which would fall to 5.2 per cent in calendar 2023.