(T.E.T)
The impact of the war in Ukraine on global supply chains could force India’s central bank to raise its inflation forecast, but may leave little scope for it to tighten monetary policy amid a deteriorating global growth outlook, according to economists. The surge in edible and crude oil prices are bound to feed into headline inflation, which has already breached the upper tolerance limit of the Reserve Bank of India’s 2%-6% target range. While the RBI has blamed supply side shocks for the spike, higher prices will nevertheless eat into disposable incomes of consumers, the backbone of the economy that has yet to fully start spending after the pandemic.
“This is the policy maker’s nightmare — risk of persistent inflation, alongside a very uneven and unsatisfactory growth,” said Ananth Narayan, senior India analyst at Observatory Group, an economic and political advisory firm. “Sharp rise in energy prices and pass through impact of other commodity prices will create more challenges for growth-inflation dynamics,” said Soumyajit Niyogi, associate director at India Ratings and Research. “Though the global central banks could still go for monetary tightening, domestically RBI is expected to continue with wait and watch policy.”
