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RBI (or for that matter any central bank) cannot actually “target” a particular level of GDP growth. All it can do is to “prioritise” supporting growth as against containing inflation.
Since late 2018, the RBI has been prioritising supporting growth over curbing inflation.
This strategy involved signalling a cut in the interest rates prevailing in the economy; the RBI does this by cutting the repo rate, which is the rate at which it lends money to the banks.
since late 2019, retail inflation has been either almost 6% or more. This, in turn, incapacitated the RBI to cut interest rates further — even when a Covid-induced “technical” recession demanded the RBI to do whatever it could.
On the back of high retail inflation — the last two data points for May and June were over 6% — the RBI has increased its forecast for inflation.
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