Price stability essential for maintaining growth, says RBI Governor Shaktikanta Das

RBI Governor Shaktikanta Das (File pic)

The Reserve Bank of India (RBI) Governor Shaktikanta Das on August 23 said price stability is essential for maintaining the economic growth of the country.

"Price stability has to be the basis of sustainable growth. Without price stability, any growth which you try to achieve in the short term will only have a short life. So price stability is absolutely essential for maintaining the momentum of growth and sustaining the country's GDP growth," Das said.

Das was speaking at the 29th Lalit Doshi Memorial Lecture on 'Building Blocks for a Sustainable Future: Some Reflection'.

He further said that the Reserve Bank’s macroeconomic and monetary policy has focused on maintaining price stability, ensuring adequate flow of credit to sustain the growth momentum, and securing financial stability.

"The financial stability objective is enabled by the powers vested with the Reserve Bank for regulation and supervision of the Indian financial system and its various segments, including the money, debt and foreign exchange segments and the payment and settlement system," Das said.

On the inflation front, the RBI governor said the central bank will remain on guard to ensure that second-order effects in the form of generalisation and persistence are not allowed to take hold.

Adding to this, he said the frequent incidences of recurring food price shocks pose a risk to anchoring of inflation expectations, which has been underway since September 2022. "We will remain watchful of this also," he noted.

The role of continued and timely supply-side interventions assumes criticality in limiting the severity and duration of such shocks.

"It is necessary to be watchful of any risk to price stability and act appropriately and in time. We remain firmly focused on aligning inflation to the target of 4 percent," Das said during the lecture.

India's headline retail inflation rate crashed past the upper bound of the RBI's 2-6 percent tolerance range in July and shot up to a 15-month high of 7.44 percent, spurred on by a massive increase in vegetable prices, data released by the Ministry of Statistics and Programme Implementation on August 14 showed.

At 7.44 percent, the Consumer Price Index (CPI) inflation print for July is a huge 257 basis points higher than the revised June number of 4.87 percent and is the 46th month in a row that it has come in above the RBI's medium-term target of 4 percent.

One basis point is one-hundredth of a percentage point.

The sharp rise in inflation was driven by higher prices for vegetables, with their index rising 38 percent month-on-month, resulting in a 6.7 percent sequential rise in Consumer Food Price Index and a 2.9 percent increase in the overall CPI.