Inflation peaked in India in April 2022, RBI says

The Reserve Bank of India in its August bulletin noted that inflation in July 2022 eased by 30 basis points from June 2022 and 60 basis points from the average of 7.3% for Q1 FY23, thereby validating its hypothesis that the retail inflation peaked in April in India.
However, the central bank said that imported inflation pressure points remain the overarching risk, followed by pending pass-through of input costs if producers regain pricing power and wages.

June was the sixth consecutive month when the headline CPI inflation remained at or above the upper tolerance level of 6%.

The bulletin also highlights the fact that India is becoming a preferred destination for portfolio flows. Equity and debt segments have recorded a net inflow of US$ 4.4 billion and 0.3 billion respectively until August 12. The market value of portfolio investments in India stood at US$ 623.8 billion on August 12.


“Deepening domestic financial markets can help countries mobilise savings, promote information sharing and diversify risk while dampening the volatility of asset prices,” the bulletin says.

Owing to certain fundamental factors like a demographic dividend, expansion in the availability of capital as the economy becomes increasingly formalised, and digital financial inclusion, India is poised to sustain a growth differential vis-a-vis the rest of the world, bulletin said.

The challenges to India’s economic growth include regaining the momentum lost to the pandemic and the shocks that followed, infrastructure gap and labour force quality.

On the growth front, RBI Governor Shaktikanta Das in his statement noted that rural economy is exhibiting mixed signals. While two-wheeler sales have increased, tractor sales have contracted in June over a high base.

The governor in his statement in recognition of the fact that there is a genuine shortfall of supply of forex in the market relative to demand said that the RBI has been supplying US dollars to the market to ensure that there is adequate forex liquidity.

“After all, this is the very purpose for which we had accumulated reserves when the capital inflows were strong. And, may I add, you buy an umbrella to use it when it rains!” he said.

On the Rupee level, the governor said that the RBI has no particular level in mind. It would like to ensure its orderly evolution and has zero tolerance for volatile and bumpy movements.