RBI to Guide Inflation Towards 4% Target by 2024

The Reserve Bank of India’s 2023 monetary policy objective is to hold inflation within the mandated tolerance band and guide it towards the medium-term target of 4% by 2024, it said in its monthly bulletin published. Recent data indicated “the first milestone of monetary policy is being passed – bringing inflation into the tolerance band”, the RBI said. The objective during 2023 is to tether inflation therein so that it aligns with the target by 2024 – the second milestone, it added.

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Inflation is under RBI’s Tolerance Range:

Annual retail inflation rose 5.72% in December versus 5.88% in the previous month, dipping below 6% for a second straight month after having stayed above the central bank’s tolerance band of 2%-6% for 10 months. 

In India, with inflation being brought within the RBI’s tolerance band, macroeconomic stability is getting bolstered and lead indicators are suggesting that the current account deficit (CAD) too will narrow through the rest of 2022 and 2023. The CAD had reached 4.4% of GDP in the July-September quarter of the current fiscal year ending March, its worst since the June quarter of 2013.

Slowdown of World Economy:

The RBI said a slowdown in growth with possibilities of recession in swathes of the global economy had become the baseline assessment even as inflation might average well above target but emerging markets were appearing more resilient now. But their biggest risks in 2023 stem from U.S. monetary policy and the U.S. dollar. 

Projections Regarding India’s GDP Size:

At current prices and exchange rates, therefore, India will be a $3.7 trillion economy in 2023, maintaining its lead over the UK as the fifth largest economy of the world. According to the IMF’s calculations, India will move into fourth place in 2025 and into the third place in 2027 as a $5.4 trillion economy, the bulletin noted.

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