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‘Job only half done’: RBI Governor says fight against inflation is not over

 

New Delhi: Reserve Bank of India Governor Shaktikanta Das on Thursday said bringing back inflation levels in India to the comfortable range is like a job half finished, adding that the fight against the price rise will have to be in a way where inflation figures are aligned around 4.0% on a durable basis.

Retail inflation currently in India is a notch above the ideal 4% target. ‘Our job is only half done, having brought inflation within the target band (4%-6%). Our fight against inflation is not yet over’, the RBI Governor said at the latest monetary policy meeting held from June 6-8, the minutes of which were published on Thursday. RBI unanimously decided to keep the repo rate unchanged at 6.5% for the second straight time. The repo rate is the rate of interest at which RBI lends to other banks.

A consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again. Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5% since May 2022 in the fight against inflation. ‘Beyond this and given the prevailing uncertainties, it is difficult to give any definitive forward guidance about our future course of action in a rate tightening cycle’, he said, adding that the RBI will continue to remain agile and flexible in managing liquidity in the banking system.

On the global economy, he said it has sustained the growth momentum and the overall uncertainty is somewhat receding. ‘Nevertheless, headwinds to global growth outlook persist. The geopolitical conflict continues unabated. Headline inflation across countries is on a downward trajectory, but is still high and above their respective targets. Central banks remain on high alert and watchful of the evolving conditions’, the RBI Governor added. In India, he said inflation has eased and the external sector outlook has improved while balance sheets of banks and corporates look resilient and healthy.

India’s retail inflation was above RBI’s 6% target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2% – 6% range for three quarters in a row. India’s retail inflation has come down to 4.25% in May, hitting a two-year low.

The RBI lowered India’s inflation projection for 2023-24 to 5.1% against its April estimate of 5.2%. On a quarterly basis, retail inflation (or Consumer Price Index) in Q1 is seen at 4.6%, Q2 at 5.2%, Q3 at 5.4%, and Q4 at 5.2%, RBI Governor said while reading out the monetary policy statement after a three-day deliberation. India’s wholesale inflation, too, turned negative in April and May at minus 0.92% and 3.48%. Overall wholesale inflation was 8.39% in October and has fallen since then. Notably, the wholesale price index (WPI)-based inflation had been in double digits for 18 months in a row till September.

 

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