India's retail inflation has moderated after remaining above the upper tolerance level since January, and frontloaded monetary policy actions are expected to bring it further under control, the Reserve Bank of India (RBI) said in a report on Thursday.
The RBI's Financial Stability Report (FSR) also said the persistence and broadening of core inflation may continue to exert pressure going forward.
"Frontloaded monetary policy actions are expected to bring inflation into the tolerance band and closer to the target while anchoring inflation expectations," the FSR noted.
The Indian economy is confronting strong global headwinds but the sound macroeconomic fundamentals and healthy financial and non-financial sector balance sheets are providing strength and resilience and engendering financial system stability, it added.
"Inflation, though elevated, is retreating in response to frontloaded monetary policy actions and supply side intervention," the report noted.
The RBI said the increase in the value of the US dollar also tends to raise inflation by driving up import prices, mainly of commodities which are invoiced in the greenback.
Currency depreciations have kept commodity prices in local currency at still elevated levels and much above their averages over the last five years in many economies, said the report.
For poorer economies, this is a "double blow" as commodity-driven inflation is likely to precipitate a "humanitarian crisis".
On the domestic financial situation, RBI said the conditions have tightened in response to the focus of the monetary policy stance on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
The RBI has been mandated by the government to keep inflation in a band of 2-6 per cent. RBI takes into account the retail inflation to review its monetary policy every two months.
After remaining above the upper tolerance level since January this year, retail inflation slipped to 5.88 per cent in November 2022 on softening food prices.