The monetary policy committee decided to raise the key repo rate to 5.40% to counter stubbornly high inflation, but we remain bullish on domestic growth. The central bank lends to everything, on all fronts.

The bank has been careful to maintain the stability of the rupee and its interventions using foreign exchange reserves have so far helped to contain the volatility of the currency.

The MPC believes that a “calibrated withdrawal of monetary policy easing is warranted” to keep inflation expectations anchored and contain second-round effects. Monetary policy will now be calibrated, measured and agile. India’s current account deficit will be manageable, the RBI has the capacity to manage the gap.

On the depreciation of the rupee against the US dollar, a decline of 4.7%, the rupee fared much better than several reserve currencies as well as many of its EME and Asian counterparts.

The depreciation of the Indian rupee is more due to the appreciation of the US dollar than to the weak macroeconomic fundamentals of the Indian economy. The RBI’s interventions in the market have helped contain volatility and ensure the orderly movement of the Rupee.

The financial sector is well capitalized and sound, while foreign exchange reserves – complemented by net forward assets – provide insurance against global fallout. “Our umbrella stays strong.”

Despite two occurrences of “Black Swan” and several shocks, the Indian economy is an island of stability. Although inflation has peaked and will soon fall, the current rate is intolerably high.

Inflationary pressures are widespread and core inflation remains high. Inflation is expected to remain above the upper tolerance threshold of 6% in the first three quarters of 2022-23, which risks destabilizing inflation expectations and triggering second-round effects. While inflation is expected to remain above the upper tolerance threshold in the second and third quarters of the current fiscal year, the MPC pointed out that sustained high inflation could destabilize inflation expectations and hurt growth. medium term.

Nonetheless, with strong and resilient fundamentals, India is set to be among the fastest growing economies in 2022-23 according to the IMF, with signs of inflation easing over the year.

With growth momentum expected to be resilient despite headwinds from the external sector, monetary policy should continue to persevere in its policy of withdrawing accommodative measures to ensure that inflation moves closer to the 4% target over the medium term, while supporting growth.