Retail inflation is set to ease from September levels, while economic activity is poised to expand, the Reserve Bank of India said in its monthly bulletin published on Monday.
“Headline inflation is set to ease from its September high, albeit stubbornly,” the RBI wrote in an article titled “State of the Economy”, adding the fight against inflation will be “dogged and prolonged”, given the long and variable lags with which monetary policy operates.
It said the expected easing in inflation would likely be “driven by the food and beverages, which has undergone repeated shocks in the first half of the year.”
India’s retail inflation accelerated in September to a five-month high of 7.41% from a year earlier as food prices surged.
RBI said the persistence of headline inflation above the mandated tolerance band of 2% to 6% for three consecutive quarters will trigger mandated accountability processes but monetary policy remains focused on re-aligning inflation with the target.
Broader economic activity was, however, poised to expand further with domestic demand accelerating as service sectors such as aviation and transport bounce back, it said.
“Robust credit growth and fortified corporate and bank balance sheets provide further strength to the economy… These factors will entrench India’s prospects as one of the fastest growing economies of the world,” the apex bank said.