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RBI well on track to bringing down inflation, says Governor Shaktikanta Das

The RBI’s analysis shows that consumer inflation exceeding 6 percent is negative for growth, the governor said.

June 24, 2022 / 02:25 PM IST
RBI Governor Shaktikanta Das (File image)

RBI Governor Shaktikanta Das (File image)

The Reserve Bank of India (RBI) is “well on track” to bringing down inflation and inflation expectations in the economy against the backdrop of supply side disruptions, the governor said.
 “Until December, CPI (Consumer Price Index) inflation is expected to remain higher than the upper tolerance level; thereafter it is expected to go below 6 percent as per our current projections,” Shaktikanta Das said in an interview to The Times of India. "There will be inflationary pressures, and only in the fourth quarter, we have projected it to go below 6 percent.”

The governor acknowledged that high inflation hurts people the most, especially the lower segment of society which is hit the hardest. Hence, it is desirable that the country has a framework for inflation and that monetary policy operates within that, Das said.

The RBI’s analysis shows that when consumer inflation exceeds 6 percent, it is negative for growth, he said, adding that the central bank is keeping a “strict vigil” on soaring price pressures. Inflation has now become broad-based but the Monetary Policy Committee (MPC) is addressing it through its actions, he said.

Retail inflation came in at 7.04 percent in May, easing from a near-eight-year high of 7.79 percent in the previous month. Inflation, however, has remained above the RBI's medium-term target of 4 percent for 32 consecutive months. More worryingly, it has now spent five months above the upper bound of the 2-6 percent tolerance range.

The MPC raised the repo rate by 50 basis points on June 8, almost a month after it had gone for a 40 basis point hike in an off-cycle policy meeting to combat rising prices. One basis point is one-hundredth of a percentage point. In the latest meeting, RBI raised the inflation forecast for this financial year to 6.7 percent, while retaining its growth forecast at 7.2 percent.

Globally, too, inflation has been surging, prompting central banks across the world to hike policy rates aggressively. The US Federal Reserve in its latest policy hiked rates by 75 basis points to put a lid on rising prices.

Das said that supply side factors have driven the current inflation in India. However, when the central bank communicates that it is focused on inflation and takes steps in that direction, it gives confidence and a clear message to households and businesses, Das said.

This will anchor inflation expectations and contain second round effects of supply shocks, the governor said. Eventually, the core and headline inflation can moderate, he added.

Further, in an environment of high inflation, if interest rates are kept artificially low, then the real rate of return for the depositors would become that much more negative and they may turn to other assets like gold. This will impact financial savings and have an immediate impact on investment, Das said.

Currently, India’s economy and its macro fundamentals are stable, the RBI governor said.​
Moneycontrol News
first published: Jun 24, 2022 02:25 pm
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