MUMBAI (Reuters) Amid the current price surge, the Reserve Bank of India reassured that the prospect of stagflation, characterized by sluggish growth and soaring Inflation, remains remote in the Indian landscape. The echoes of this sentiment were heard in the August bulletin released on Thursday.

According to a meticulously conducted analysis by the central bank, the odds of India succumbing to stagflation stand at a mere 3%. The improvement in financial circumstances, the steadfast stability of the INR/USD exchange rate, and the unwavering constancy of domestic fuel prices all contribute to this upbeat outlook.

Intriguingly, the escalation in inflation that materialized in June underwent a transformative metamorphosis in July. The shocking upheaval in tomato prices cascaded into a broader spectrum, ensnaring the prices of various other vegetables, as articulated in the RBI’s State of the Economy exposé.

Venturing into the realm of statistics, India’s annual retail inflation embarked on a steep ascent, scaling a 15-month summit of 7.44% in July, compared to the preceding month’s 4.87%. A significant increase in the price of cereals and vegetables fueled this dramatic surge. Remarkably, these figures breached the upper echelon of the RBI’s inflation band, which hovers between 2% and 6%, setting a precedent by breaching these boundaries for the first time in half a year.

The contemporaneous high-frequency data for August divulges that the prices of cereals and pulses are obstinately forging ahead on their upward trajectory. In its elegant narrative, the bulletin revealed that, on average, tomato prices have notched up another incremental hike. Nonetheless, according to the RBI’s discerning eye, recent data suggests a fractional retreat in these prices.

Onion and potato prices, it noted, have also displayed incremental increments in their sequential movement.

While core inflation moderated in July amid the shifting tapestry of inflation dynamics, the RBI’s elegantly etched quill predicts that the overall inflationary index will continue to hover above the 6% mark in the second quarter.

In its most recent meeting concerning the repo rate, the Monetary Policy Committee maintained a steady course. With its watchful gaze, the RBI undertook strategic maneuvers to temporarily alleviate the liquidity surging through the banking system.

With an astute eye on the financial equilibrium, the RBI underscored that the profusion of liquidity carries the potential seeds of economic instability, possibly sprouting into asset price bubbles while concurrently enfeebling lending standards. In eloquent prose, the bulletin illuminated, “As the banking edifice endeavors to encapsulate this excess liquidity within the boundaries of prudent credit expansion, it becomes imperative to temporarily dam the overflow of liquidity from permeating the crevices.”

The crystal ball of the central bank, in the form of its economic activity index (EAI), presently prophesies GDP growth at 7.8% for the first quarter of the fiscal year 2023/24, an insight elegantly unveiled within the bulletin pages.