There is a need to evaluate the effects of monetary policy actions carried out so far on overall economic activity, Reserve Bank of India (RBI) said in its monthly bulletin on Friday.

“We need to evaluate the effects on underlying economic activity as past monetary policy actions work their way through the well-known lags associated with the implementation of monetary policy,” the central bank said in the ‘State of Economy’ article.

The article is authored by a team led by deputy governor Michael Patra.

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In its latest monetary policy in April, the central bank decided to temporarily pause repo rate hikes. This, after it has cumulatively increased the rate by 250 basis points since May 2022 in a bid to keep inflation in check.

The central bank’s decision was driven by the fact that headline CPI inflation has eased to 5.7% in March 2023 from 7.8% in April 2022. This headline inflation is expected to ease further to 5.2% in January-March 2024.

“Substantial disinflation has been achieved, but the road to be travelled stretches ahead till inflation is at or close to the target of 4%,” the article said.

The government has mandated RBI to ensure that retail inflation remains at 4% with a margin of 2% on either side.

In India, aggregate demand conditions remain resilient, supported by a rebound in contact-intensive services. Expectations of a bumper rabi harvest, the fiscal thrust on infrastructure, and the revival in corporate investment in select sectors bode well for the economy, the article said.

Additionally, investment activity in India is exhibiting buoyancy due to strong composite purchasing managers indices. India has the highest PMI among comparable countries. This is due to the fiscal focus on infrastructure spending, and revival in corporate investment in certain key sectors.

Despite various challenges, the corporate sector remains healthy. This may fuel he revival in the corporate capital expenditure cycle in 2023-24(April-March).

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“In time, enduring price and financial stability will strengthen the foundations of the economy and provide a fillip to growth,” the article said.

“Central banks the world over are invested with dual mandates are at a fork in their course. The RBI has taken the road that is less travelled by, balancing and calibrating both actions and pace.”