• UGI USER
  • Dec 27, 2023
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RBI VIEWS ON STAGFLATION RISK

Why in the News?

  • Reserve Bank of India (RBI) officials see the risk of stagflation, a combination of economic stagnation and high inflation, dropping from 3% in August to 1% based on recent data.
Source: Insider

About the Assessment:

The assessment considers two approaches:

  • One based on phases of low economic growth coinciding with high inflation, and
  • Second using “Inflation at Risk” (IaR) and “Growth at Risk” (GaR) frameworks employing quantile regression.

Major Determinants of Stagflation:

  • Primary factors :
  • Supply-side shocks like commodity price spikes,
  • Tighter financial conditions, and
  • Higher depreciation of the domestic currency
  • Historical episodes of elevated stagflation risks
  • Asian Crisis,
  • Global Financial Crisis,
  • Taper tantrum,
  • COVID-19 pandemic.
  • Global factors
  • S. dollar’s appreciation post-pandemic
  • Higher commodity prices

The RBI emphasizes its commitment to maintaining price stability while monitoring stagflation risks, considering both domestic and  global economic dynamics.