“India, as a net importer of commodities, should benefit on the inflation front,” Samiran Chakraborty, chief executive and chief economist for India at Citigroup, said in an interview with Bloomberg Television on Monday. He added that India would still face the pressure of a global slowdown as it will hurt exports and economic growth.
“With the current policy focus solely on controlling inflation, it seems that this may perversely benefit India to some extent,” Chakraborty said.
Fears of a recession have emerged as prominent central banks around the world such as the US Federal Reserve and the ECB are aggressively raising interest rates to stem rising inflationary pressures amid the ongoing Russia-Ukraine war and the unwinding of pandemic-era measures.
The Reserve Bank of India has raised interest rates by 90 basis points since May on inflationary pressures. Analysts believe that more rate hikes could be announced as headline inflation has remained above the central bank’s Monetary Policy Committee (MPC) threshold and is expected to remain so in the coming months.
Inflation will not be painless
Deputy Governor in charge of monetary policy, Michael Patra, recently said CPI inflation will remain above the RBI’s 2%-6% target range for the next three quarters.
If inflation is not kept within the prescribed range for three quarters, the RBI must write a letter to the federal government explaining why it missed target and proposing remedial action.
“There are signs that inflation is peaking as monetary policy seeps into the economy,” Patra said, adding that CPI is expected to fall below 6% in the fourth quarter of 2023 and easily reach 4% in two years.
