Pro-active supply measures by the government remain vital to address bottlenecks and shortages in critical areas to mitigate volatility in inflation and enable a sustained disinflation, according to the Reserve Bank of India’s latest monetary policy report (MPR).

The observation comes in the backdrop of RBI Governor Shaktikanta Das’ monetary policy statement that “projections for 2023-24 point to a softening in inflation, though the disinflation is likely to be gradual and protracted, given the rigidity in core or underlying inflation pressures”.

The MPR noted that the outlook for headline inflation 2023-24 is subject to uncertainties surrounding climate-related disturbances such as heat wave and unseasonal rains.

Moreover, a resurgence in geopolitical tensions could lead to supply chain dislocations and commodity price pressures; per contra, an earlier resolution of geopolitical hostilities can soften price pressures, it added.

“Global demand conditions are turning more uncertain amidst rising financial market turbulence and financial stability concerns, which could weigh in on commodity prices.

“Amidst these elevated uncertainties, monetary policy remains focussed on progressively aligning inflation with the target,” said the report.

The report cautiouned that geopolitical hostilities, stubborn global inflation, volatile global financial markets and climate shocks are the key risks to the growth and the inflation outlook.

MPR said going forward, the RBI will need to remain vigilant in mitigating the impact of global spillovers on domestic financial markets 

The report said the global economy is slowing under the impact of tighter financial conditions, high inflation, and the lingering conflict in Ukraine.

‘Global financial markets have exhibited heightened volatility in response to the evolving inflation and financial stability developments, in particular, recent banking sector stress.

‘Food and energy insecurity, financial stability concerns and risks of debt distress pose downside risks to the outlook for emerging market and developing economies,’ it said.

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