Global stagflationary impulses—slowdown in growth and increase in consumer price inflation—can impact domestic growth and inflation through multiple channels, cautioned RBI’s monetary policy report (MPR).

The report noted that lower external demand drags down export demand and overall domestic demand and growth. At the same time, weak global demand can soften global commodity prices.

Higher global commodity prices increase domestic inflation through direct and cost-push channels and dampen domestic growth through weakening of aggregate demand, said the report.

Further, higher global inflation and global interest rates impact capital flows, put downward pressures on the domestic currency and lead to higher imported inflation.

Based on the ‘Rest of the World (RoW) Block’ of the RBI’s Quarterly Projection Model3 , the peak impact on India’s inflation and growth through all the channels occurs by four quarters.

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Second-round effects can keep inflation at elevated levels even beyond eight quarters, necessitating appropriate monetary policy actions to anchor inflation expectations, the MPR said.

In such circumstances, frontloaded monetary policy actions by showing a strong commitment to the inflation target add to credibility gains and help in reining in inflation with lower output losses, according to the report.

Global growth is expected to slow down from 6.1 per cent in 2021 to 3.2 per cent in 2022 and the outlook is “gloomy and more uncertain”, with risks tilted to the downside, said the report quoting IMF data.

According to IMF, Global consumer price inflation is projected by the IMF to increase from 4.7 per cent in 2021 to 8.3 per cent in 2022.

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