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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 
Minutes of the latest RBI’s Monetary Policy Committee (MPC) meeting shows that the growth-vs-inflation conundrum continues to haunt policymakers. But there is a twist in the tale.
Earlier meets reflected greater consensus among members over the need to rein in raging inflation. Minutes of the latest meeting point to a divide among members over the need to trim inflation and the need to be wary of a slowdown in growth.
MPC members from the RBI continue to worry over inflation. Deputy Governor Michael D Patra termed inflation as “unconscionably elevated” while Governor Shaktikanta Das said a premature pause could prove costly. True, food and fuel inflation is ebbing, but the core consumer price index (CPI) in FY2023 is likely to end at around 6 per cent, which is well above the RBI’s target of 4 per cent.
The pressures from pass-through of rising input costs arising from global supply constraints and uncertainties from renewed COVID-19 waves in China and the Russia-Ukraine war are worrisome. Management commentary after the second quarter points to elevated input costs that may hurt gross margins in core manufacturing sectors. Das’ statement, therefore, that “the battle against inflation is not over” seems justified.
In this article, N R Bhanumurthy, Vice-Chancellor, Dr B R Ambedkar School of Economics University, drives home why it is imperative for India to follow the fiscal-monetary strategy of the last two years to curb a further build-up of inflationary expectations.
However, the MPC’s external members — Jayanth Varma and Ashima Goyal — who were dovish, flagged growth concerns in the economy over inflation. They argue that the RBI’s estimate of inflation in the quarters ahead is based on an “overestimated” average crude oil price of $100 per barrel. Contraction in the latest Index of Industrial Production (IIP) is unsettling as the manufacturing sector portrayed a sharp drop.
Meanwhile, exports are weakening and the outlook on private sector capital expenditure is turning cautious. As the tech sector faces slowdown from global orders and a spate of layoffs, monthly commercial leasing activity in India showed a drop in November compared to October as lessees turned slightly wary. All this backs Varma’s statement, “economic growth is extremely fragile”, and calls for policy attention.
What’s the verdict? To be sure, lower magnitude of rate hikes signals that inflation is responding to earlier tightening measures. But the panel needs to see a decisive decline in inflation over several months before it pauses rate hikes or shifts its stance.
A note by international research and brokerage firm Nomura on the latest MPC minutes says that the members’ focus is trained firmly on the upside risks on inflation rather than the downside risks on growth. One could say the dissent among MPC members on the growth-vs-inflation battle tells us that rate hikes are in the last lap.
In other developments, the pandemic is not out of the global radar yet. And, India too announced measures to reinstate COVID tests for international travellers yet again, as several countries show a surge in infections. That’s a proactive step to ensure we are not caught napping.
Today’s edition also has several articles (links below) on the outlook for some key sectors and financial markets as a whole, in 2023.
Investing insights from our research team
Reliance Retail: Takeover of Metro India operations to boost new commerce business
UPL: Wait for the right key to open re-rating door
Kajaria Ceramics – Right levers in place
What else are we reading?
Year of the Rabbit: Recessions, deflation and earnings cuts
Foreign portfolio flows turn crucial for equities as MF inflows ease
Startup Street | Why new businesses find it tough to grow up
What this year in crypto has taught us (republished from the FT)
Congress’ Dilemma | Give Sachin Pilot control, or let party face turbulence in Rajasthan
Banking | Will 2023 be as good as 2022?
Persist with prudent macro measures to control inflationary expectations
Bihar’s prohibition is not working. Historically it seldom does
IPL 2023 | Impact Player rule will diminish dependence on all-rounders

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