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World Bank sees decline in inflation in India

India’s October inflation eased to 6.77 per cent. (file)

New Delhi:

The World Bank today said inflation is expected to remain at 7.1 per cent in the current fiscal and added that fall in commodity prices could ease inflationary pressures.

India’s October inflation eased to 6.77 per cent from 7.41 per cent in the previous month, mainly due to lower prices in the food basket, although it remained above the Reserve Bank’s comfort level for the 10th consecutive month.

The World Bank today released its India Development Report titled “Navigating the Storm”.

“Inflation is slightly higher than the RBI’s limit. The driving factor for this is largely food and our expectation is that over the next year, inflation will come down and come down to the RBI’s range of 2 per cent to 6 per cent. We expect It should be 5.1 percent in the next fiscal year, said Dhruv Sharma, senior economist at the World Bank and lead author of the report.

According to the report, the country’s fiscal policy supported RBI’s rate actions by cutting excise duty and other taxes on fuel to cushion the impact of higher global oil prices on inflation.

However, the report also cautioned that there is a trade-off between trying to limit the adverse impact of global spillovers on India’s growth and the available policy space.

The report said that both the levers of macroeconomic policy – fiscal and monetary – have played a role in managing the challenges that have emerged over the past year.

The rapid monetary policy tightening in advanced economies has already resulted in large portfolio outflows and depreciation of the Indian rupee, while higher global commodity prices widened the current account deficit, the World Bank report said.

However, the report also argues that India’s economy is relatively insulated from global spillovers compared to other emerging markets. This is partly because India has large domestic markets and is exposed to relatively few international trade flows.

A Monetary Policy Committee (MPC) of the Reserve Bank of India began a three-day meeting on Monday. Financial markets will keenly watch the Committee’s rate hike stance, if any, given that inflation is still above the target band of 6 per cent.

The central bank had already raised the key policy rate by 190 basis points to 5.9 per cent since May to cool domestic retail inflation, which has remained above the RBI’s upper tolerance limit for three quarters now. Retail inflation in October stood at 6.77 per cent as against 7.41 per cent in the previous month.

An out-of-turn meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India was held in early November to discuss and draft a report to be sent to the central government for failing to uphold the inflation mandate was.

(This story has not been edited by NDTV staff and was auto-generated from a syndicated feed.)

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