India’s headline inflation has stayed around 6%, which has led members of the Prime Minister’s Economic Advisory Council (EAC) to suggest that the Reserve Bank of India (RBI) may have to raise rates again at its next monetary policy committee meeting in April.The RBI has been keeping a watchful eye on the stability of the rupee, as well as the uncertainty surrounding the US markets and the Federal Reserve’s impending decision.
Speaking at a Crisil India outlook seminar on ‘Rider in the Storm, EAC-PM part-time member Sajjid Z. Chinoy highlighted the fact that core inflation has been sticky at around 6% for some time and that it would be prudent for the RBI to implement one more rate hike rather than prematurely halting rate hikes and facing unexpected consequences later on.
In the current global environment, India needs to preserve macroeconomic stability in 2023 rather than loosen fiscal or monetary policies prematurely, according to Chinoy. He also suggested that India should not be too concerned about any slowdown in growth that may occur due to a mild recession later this year but instead focus on integrating itself into global supply chains.
Neelkanth Mishra, a part-time member of EAC-PM and a Credit Suisse veteran, also said something about the situation. He said that the RBI may have to raise rates again in April because companies are starting to pay off dollar loans with rupee loans.Mishra warned, however, that sticking to the tightening path could prove to be a bigger policy mistake as the impact of rates may only be seen with a lag. Bringing core inflation down remains a hard job, but a global slowdown may help to achieve this.
Lastly, Mishra talked about how India’s growth can keep going even if it slows down. He also talked about how manufacturing needs to be a focus for job creation. Providing jobs, especially blue-collar jobs, will be key, and if global demand stagnates, India’s manufacturing competitiveness will be put to the test over the next year.