Monetary policy setting is undoubtedly challenging when the growth forecasts have to be revised downwards, but the opposite has to be done for the inflation forecasts as the energy and food price shocks pass through the system. RBI MPC is going to be presented with a similar dilemma in the April meeting. On top of it, while the primary source of the rise in inflation forecasts would be “supply side”, the characteristics of inflation embodied in the 3 P’s of persistence, pervasiveness and perception are now demanding the attention of monetary policymakers. With growth forecasts likely in the range of 7-7.5 per cent for FY23, slack in the economy may persist for the entire year but the MPC needs to carefully consider why this is coexisting with elevated core inflation.
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