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RBI reports that India’s inflation peaked in April 2022

The Reserve Bank of India stated in its August bulletin that the retail inflation in India peaked in April and that it declined by 30 basis points from June 2022 and 60 basis points from the average of 7.3% for Q1 FY23 in July 2022.

The major danger, according to the central bank, is still the pressure points on inflation brought in from abroad, followed by the potential pass-through of input costs if manufacturers reclaim their pricing and wage power.

The headline CPI inflation rate stayed at or above the 6% upper tolerance threshold in June for the sixth month running.

The report also emphasises the development of India as a favoured location for portfolio flows. Up until August 12, the equity and debt segments saw net inflows of US$ 4.4 billion and US$ 0.3 billion, respectively. On August 12, the market value of portfolio investments in India was US$ 623.8 billion.

The bulletin states that strengthening domestic financial markets can assist nations in mobilising funds, encouraging information exchange, and reducing risk while reducing asset price volatility.

According to the bulletin, India is well-positioned to maintain a growth differential with respect to the rest of the world due to a number of fundamental factors including a demographic dividend, an increase in the amount of capital available as the economy becomes more formalised, and digital financial inclusion.

Regaining the impetus lost to the pandemic and the shocks that followed, the infrastructure deficit, and the quality of the labour force are among the obstacles to India’s economic progress.

In his statement, RBI Governor Shaktikanta Das remarked that the rural sector is sending conflicting signals regarding growth. Tractor sales decreased in June over a high base, despite an increase in two-wheeler sales.

The governor acknowledged that there is a real gap between the supply and demand of foreign exchange in his remarks and stated that the RBI has been delivering US dollars to the market to maintain adequate foreign exchange 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 added.

The governor stated that the RBI does not have a certain level in mind for the rupee. It has no tolerance for volatile and bumpy movements and would want to maintain an orderly evolution.

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