The Reserve Bank of India (RBI) Governor Shaktikanta Das said the ongoing war in Ukraine has had a clear impact on the central bank's inflation fighting in recent times.
“In fact, without the war in Ukraine, our inflation would have been very much within our target range,” Das said at an interaction during Governor’s Series Talk at Frontiers of Central Banking in Asia at Marrakech on October 13.
The central bank has an inflation target of 4 percent with a tolerance band of 2 percent on either side.
Das said that in February 2022, during monetary policy, the central bank had projected inflation (average) for the next financial year 2022-23, i.e., from April 2022 to March 2023, was 4.5 percent, very close to their target of 4 percent.
But Governor said that later the war commenced, which hit the commodity prices to roof, especially crude oil prices.
“Then the supplies of wheat and other cereals were affected. The international prices of these cereals went up. Despite India being surplus in wheat, its domestic prices also went up because we are also linked to the international market as India exports quite a bit of wheat,” Das added.
“I would say, but for the unexpected onset of the war in Ukraine, our inflation would have been very much under control,” Das said.
Despite the higher inflation, India could control it better because of the calibrated and targeted measures which we, both fiscal and monetary authorities, i.e., the Reserve Bank and the Finance Ministry, had undertaken, Das said.
Prior to this, on October 20, RBI Governor during plenary address at Kautilya Economic Conclave 2023 said the central bank will keep a closer watch on the changing dynamics of inflation.
“We remain extra vigilant on the evolving inflation dynamics,” Das said in the plenary address at Kautilya Economic Conclave 2023.
In September, India’s headline retail inflation rate fell to 5.02 percent in September, aided by a steep plunge in the vegetable prices.
At 5.02 percent, the Consumer Price Index (CPI) inflation print for September is 181 basis points lower than 6.83 percent a month before.
Das said core inflation too has fallen. “There has been further progress in anchoring inflation expectations. In the current situation, monetary policy must remain actively disinflationary,” he said.
To combat the higher inflation, the central bank increased the repo rate by 250 basis points (Bps) since May, 2022, before pausing rate hike in April this year.
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