Inflation On Cooling Trajectory: RBI Bulletin

Reserve Bank of India. in its September 2021 review, said the country is on a recovering tragectory after the second wave of COVID-19 took a toll on the country's economy. The Central Bank said aggregate demand is gaining firmer ground, while the supply side, IIP and core industries are witnessing an improvement in industrial activity and services sector indicators are suggesting sustained recovery.  

The bulletin stated that inflation trajectory is soothing down more favourably than anticipated. "As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy", the bulletin read. 

Inflation outcome for August 2021 "vindicated" the Monetary Policy Committee's suggestion for treating the May price shock as transitory, the bulletin stated. It further suggested that softening of food prices would likely continue into Q3 and balance the upside price pressures stemming from fuel and core prices on headline inflation. 

"The inflation outcome for August has vindicated the MPC’s call for treating the May price shock as transitory and looking through it. The softening of prices of various food items is likely to extend into Q3 and contain the upside price pressures stemming from fuel and core prices on headline inflation", said the apex banker. 

RBI, however expressed concern about credit creation, especially with regards to the industrial sector. "In the pandemic year, the credit extended by the dominant-group to the industrial sector registered an accelerated growth of 5.1 per cent though that delivered by the other-group contracted by over 7.0 per cent", the report stated. The bulletin stated, therefore, it was evident that a few banks were driving credit growth to the industrial sector whereas the other banks were lagging behind in extending credit to the industrial sector.