The fight against inflation will be dogged and prolonged, given the long and variable lags with which monetary policy operates, an RBI article said.

India’s retail inflation climbed to 7.41% in September, remaining above RBI's upper tolerance level of 6% for the ninth month in a row.

The RBI expects headline inflation to ease from its September levels on the back of easing momentum and favourable base effects. “Headline inflation is set to ease from its September high, albeit stubbornly,” the RBI wrote in an article titled ‘State of the Economy’.

"These positive developments are likely to be driven by the food and beverages, which has undergone repeated shocks in the first half of the year...There has also been an appreciable decline in WPI inflation in September on a broad-based easing across its constituents. Easing in international price pressures embodied in commodity and supply chain pressures are also likely to contribute to the softening of costs and prices," it added.

The article has been published in the RBI's October bulletin.

"While the persistence of headline CPI (Consumer Price Index) inflation above the tolerance band for three consecutive quarters (up to September) will trigger mandated accountability processes, monetary policy remains focussed on realigning inflation with the target," the article said.

The RBI also said that this trajectory will likely be gradual in view of the repeated shocks to which inflation has been subjected by both epidemiological and geopolitical causes.

The easing of inflation will inject confidence into both consumers and businesses, recharge animal spirits and investment and improve the international competitiveness of India’s exports.

"Yet, if we succeed, we will entrench India's prospects as one of the fastest growing economies of the world enjoying a negative inflation differential with the rest of the world," according to the article on the state of economy authored by a team lead by Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra.

It said this happy outcome will re-enthuse foreign investors, stabilise markets and secure financial stability on an enduring basis.

The central bank said the views expressed in the article are those of the authors and do not represent its views.

 The RBI expects recovery in the economy to be driven by contact-intensive sectors as the hangover effects of the pandemic have waned and the festival season spending is already boosting consumption demand.