Aligning inflation with 4% target is assured: RBI

Reserve Bank of India’s objective of aligning inflation with its 4 per cent target on a durable basis is far from assured and not being able to achieve this could hamper the economic growth, the bank said in its latest bulletin published on Wednesday.

"On a real-time basis, inflation is hurting discretionary consumer spending and this, in turn, is holding back topline growth of manufacturing companies as well as their capex," the Reserve Bank of India (RBI) stated in its 'State of the Economy' article.

"If inflation is not brought back to the target and tethered there, there is a strong likelihood that growth may falter."

Countries’ annual retail inflation rate surged to 5.55 per cent in November from 4.87 per cent in October due to a rise in food prices, according to the latest data.

Projections indicated that inflation will go up further from the September-October 2023 average inflation rate of 4.9% before it can come down, the RBI said.

As per the projections, the inflation is likely to go up further from September-October 2023 average inflation rate of 4.9 per cent before it cools off, the RBI said. 

The article also stated that softer inflation data has engendered a "hypermetropia" among some stakeholders - an irrational long-sightedness where inflation forecasts moving towards the 4 per cent target in the distant future are clearly sighted while near-term spikes due to food price volatility are blurred.

The RBI has highlighted the requirement to remain watchful and stay in action mode as the outlook evolves. 

On the growth front, however, the RBI sounded a tone of cautious optimism and said internal models highlighted that surge is likely to continue in H2:2023-24 and 2024-25 despite some moderation.

Evidence from high-frequency indicators signals towards continued strength in demand conditions, the RBI said.

(With Reuters inputs)