Question

    According to the Economic Survey 2023-24, what measures

    helped reduce core inflation in India to a four-year low in FY24?
    A Increased subsidies and fiscal spending Correct Answer Incorrect Answer
    B Prudent monetary policy response and calibrated trade policy measures Correct Answer Incorrect Answer
    C Reduced government intervention in markets Correct Answer Incorrect Answer
    D Increased import tariffs Correct Answer Incorrect Answer

    Solution

    Prudent monetary policy response and calibrated trade policy measures along with strong output growth, helped reduce core inflation in India to a four-year low in FY24 Prudent Monetary Policy Response:

    1. Interest Rate Adjustments:
      • The Reserve Bank of India (RBI) implemented a series of interest rate hikes to absorb excess liquidity from the economy. Specifically, the policy repo rate was increased by 250 basis points from 4% in May 2022 to 6.5% in February 2023.
      • This tightening of monetary policy helped to control inflationary pressures by making borrowing more expensive, which in turn reduced spending and investment, leading to lower demand-pull inflation.
    2. Inflation Targeting:
      • The RBI maintained a commitment to its inflation targeting framework, which aims to keep inflation within a target range of 2-6%. By focusing on this goal, the RBI took proactive measures to ensure that inflationary expectations were anchored, thereby preventing a wage-price spiral.

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