For India’s central bank, inflation isn’t a passing problem. In an interview to TOI, RBI governor Shaktikanta Das said inflation is likely to grow further and remain above the upper limit of Mint Street’s tolerance band (of 2-6%) till December this year.
“Thereafter, it is expected to go below 6% as per our current projections,” Das told TOI.
Das sees inflation growth on the back of resurfacing Covid fears and supply-chain disruptions caused by the Russia-Ukraine war. However, the governor said with GDP exceeding the FY20 levels and other high-frequency indicators showing improvement, India’s economy is steadily recovering.
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“The revival of economic activity continues to be steady and is gaining traction. GDP has exceeded 2019-20 levels and, from April 2022 onwards, many high-frequency indicators that we monitor are showing steady improvement. The economy is back on track.”
When asked about rupee’s downward spiral, the governor called it a spillover of the monetary policy actions in advanced economies. According to Das, inflation is an international concern as of now. Advanced economies like that of US, UK and Europe are facing challenges in curtailing the inflationary pressures which in turn, is affecting the Indian economy.
However, strong forex and well-conditioned macro fundamentals may result in increasing the growth pace for the India economy.
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“Our forex reserves are quite strong. Our forex reserves are almost two-and-a-half times that of our short-term foreign debt in terms of residual maturity. Second, our macro fundamentals are far better, and India is in a better place than many other economies. Further, India is witnessing revival of growth, which is also steady.”
Considering investment opportunities, the governor said that the opportunities are larger in pharma, technology, and renewables sectors.
“The other opportunity for India is to get into the global supply chain – in manufacturing, services and agricultural products – in a bigger way,” he added.
Talking about measures taken by RBI to curb inflation, governor Das explained that the MPC has been working on it. Inflation, over growth, has become RBI’s top priority which is why they are focusing on withdrawal of accommodative stance.
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The RBI had increased the repo rate by 50 basis points earlier this month, after a 40-bps increase in May, to prevent growing inflationary pressure from becoming broad-based. Further hikes are expected in coming months.
When asked if RBI could increase the upper limit of the tolerance band, which currently stands at 6%, the RBI governor said that it is flexible but increasing if it exceeds 6% then it is negative for growth.
Das assured that the pace of RBI’s actions will depend on the pattern of the problem.
India’s retail inflation slipped to 7.04% in May, from an eight-year high 7.79% in April. However, the number has remained above the upper limit of RBI’s tolerance for the fifth consecutive month. (Economic Times)
