economy | IST

Inflation still uncomfortably high: RBI Guv Shaktikanta Das


RBI Governor Shaktikanta Das said there are early indications that inflation may have peaked in April but multiple geopolitical crises and financial volatility have to be factored in.

RBI Governor Shaktikanta Das has reiterated that inflation remains unacceptably and uncomfortably high, but domestic growth remains resilient and this gives the (Monetary Policy Committee) MPC some space to act.

In the first week of August, the central bank raised the benchmark lending rate by 50 basis points to 5.40 percent to tame inflation. With the latest hike, the repo rate, or the short-term lending rate at which banks borrow, has crossed the pre-pandemic level of 5.15 percent.

"The high level of inflation continues to be broad-based with 13 out of 23 CPI subgroups/groups, comprising close to 60 percent of the CPI basket, registering more than 6 percent inflation in June 2022," Das said.

The RBI governor said though there are early indications that inflation might have peaked in April, significant uncertainties remain on account of adverse global spillovers coming from simmering geopolitical tensions, volatile global commodity prices and financial markets.

"Sustained high inflation, unless addressed effectively, could result in unanchoring of inflation expectations and their second-order effects. This necessitates appropriate monetary policy response to prevent upward drift in inflation from the target rate," Das said.

"Our actions today are tailored towards first bringing the CPI inflation within the target band and then taking it close to the target of 4.0 percent over the medium term, while supporting growth. The sequence of our policy measures is expected to strengthen monetary policy credibility and anchor inflation expectations," the governor added.
The RBI MPC minutes said that rural consumption is expected to benefit from the brightening agricultural prospects, "The demand for contact-intensive services and the improvement in business and consumer sentiment should bolster discretionary spending and urban consumption."
The minutes said investment activity is expected to get support from the government’s capex push, improving bank credit and rising capacity utilisation. However, elevated risks emanating from protracted geopolitical tensions, the upsurge in global financial market volatility and tightening global financial conditions continue to weigh heavily on the outlook, it said.
According to RBI deputy governor Michael Debabrata Patra, frontloading of monetary policy actions "can keep inflation expectations firmly anchored, re-align inflation with the target and reduce the medium-term growth sacrifice as it is timed into the recovery underway."
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