Key Points
A paper by senior Reserve Bank of India (RBI) staff revealed that the central bank's cumulative rate hikes of 2.5 percentage points since May 2022 have negatively impacted headline inflation by 1.60%..
The study, which does not reflect the official views of the RBI, indicated that these rate increases have helped anchor inflation expectations and modulate aggregate demand, resulting in disinflationary effects.Reuters..
"Policy rate increases have anchored inflation expectations and modulated aggregate demand, generating disinflationary responses," the paper by Deputy Governor Michael Patra, Indranil Bhattacharyya, Joice John and Avnish Kumar, said.. Making it clear that the paper does not represent the views of the central bank, the study on monetary policy transmission found that monetary policy changes affect short-term interest rates more than long-term rates...
"The macroeconomic impact of monetary policy on aggregate demand and inflation indicate that the 2.50 per cent increase since May 2022 has negatively contributed to aggregate demand and headline inflation by 160 bps each till Q2:2024-25, working through various channels of policy transmission," it said...
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