The Reserve Bank of India (RBI) Governor, Shaktikanta Das, reiterated the central bank's commitment to reducing inflation to 4% during a lecture at the Delhi School of Economics on Tuesday. The statement comes amid concerns over global supply shocks and their potential impact on price management.
Das stressed that the RBI is vigilant in ensuring that inflation does not lead to generalization and persistence, and remains prepared to undertake policy responses to deal with these shocks. He highlighted the importance of continued and timely supply-side interventions by the government in limiting the severity and duration of such food price shocks.
The governor also addressed the current high global inflation episode and the overlapping shocks of the pandemic and Russia-Ukraine war, which have raised significant issues for monetary policy conduct. He noted that the monetary policy framework in India has evolved in response to these developments.
In light of these challenges, Das revealed that following the outbreak of the war, the central bank had raised policy rates by 250 basis points since May 2022. This move was part of a broader strategy to strengthen financial stability, with several initiatives taken to revamp the regulation and supervision of banks, Non-Banking Financial Companies (NBFCs), and other financial entities.
Das pointed out that inflation, which had peaked at 7.4% in July due to rising vegetable prices, has started to moderate. He stated that headline inflation based on the Consumer Price Index (CPI) had eased to 4.8% in June 2023 from a peak of 7.8% in April 2022.
The governor emphasized that low and stable inflation aids households and businesses in long-term planning for savings and investments, driving innovation, productivity, and sustainable growth. Conversely, high and volatile inflation erodes the economy's productivity and long-term growth potential, imposing a disproportionate burden on the poor.
The RBI has been mandated by the government to maintain price stability while keeping growth objectives in mind. The target set by the government in consultation with the RBI is a headline CPI inflation target of 4%, with a tolerance band of +/- 2%. This flexibility accommodates growth and financial stability concerns, supply shocks, as well as measurement and forecast errors.
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