Inflation issue: RBI’s Monetary Policy Committee (MPC) member Shashank Bhide on Friday advocated coordinated policy efforts to address the issue of high inflation.
He stressed that the high inflation rate in the last three quarters is mainly a result of ‘exogenous’ price shocks. Bhide said inflationary pressures are high and this is certainly a test for India’s inflation targeting framework.
He said in an email interview with PTI, “The high inflation rate in the second quarter of FY 2022-23 follows the high inflation in the previous two quarters. Higher fuel and food prices and their spread across other sectors has led to higher inflation rates.” has been maintained.”
Retail inflation based on CPI has remained above 6 per cent since January 2022 and was 7.41 per cent in September. MPC factors in retail inflation while deciding RBI’s bi-monthly monetary policy.
“While this pattern is primarily the result of exogenous price shocks, it is important to take measures to limit the spillover of price shocks to the rest of the economy.” Coordinated policy efforts, monetary policy and other economic efforts to address these issues would be required. policies,” Bhide said.
Central bank needs to ensure that retail inflation remains at 4 per cent
As per the mandate given by the central government to the RBI, the central bank needs to ensure that retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
Describing the current global macroeconomic environment as challenging in terms of inflationary pressures and growth, he said, “With its diverse economic base and prudent policies, India should be able to meet these challenges”.
Monetary policy tightening aims to ease inflationary pressures
Bhide said the tough monetary policy by RBI is aimed at easing inflationary pressures as high inflation adversely affects consumption and investment demand.
Observing that borrowing costs rise due to a hike in interest rates, he said the expectation of lower inflation would help improve demand conditions.
RBI has been aggressively raising key interest rates since May to control inflation.
It has so far raised the short-term lending rate by 190 basis points, taking the rate to a nearly three-year high of 5.9 percent.
The Reserve Bank will hold a special meeting of its Rating Committee on November 3 to prepare a report for the government on why it failed to keep retail inflation below the target of 6 per cent for three consecutive quarters from January.
(with PTI input)
The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das will prepare a report on the reasons for the failure to meet the inflation target as well as the remedial measures being taken by the central bank to bring down prices in the country.
On India’s current macroeconomic situation, Bhide said, “The risks come from an uncertain global environment, but GDP growth for the current fiscal is expected to be close to 7 per cent.”
He stressed that the Indian economy has shown resilience in getting back on the growth path after going through several waves of the COVID-19 pandemic.
“The COVID-19 pandemic also presented challenges on a global scale, affecting trade and supply chains,” Bhide said. Ukraine War.
According to him, the global growth slowdown is also expected to ease the price pressure.
IMF chief Kristalina Georgieva recently said that the global economy is moving towards a world of relative uncertainty more than predicted.
6.5 percent growth forecast for the Indian economy in 2022-23
The World Bank on October 6 projected a growth rate of 6.5 per cent for the Indian economy in 2022-23, one percentage point lower than the June 2022 projections, citing the deteriorating international environment. The IMF has projected a growth rate of 6.8 percent for India in 2022, compared to 8.7 percent in 2021.
Responding to a query on the rupee touching its all-time low, Bhide said the devaluation of the currency also reflects the strengthening of the US dollar against most currencies due to tougher monetary policy measures in the US.
“Weak rupee also affects inflationary pressures as the cost of imports goes up at a time when the price of fuel items remains high,” he said.
Bhide – an honorary senior adviser to the National Council of Applied Economic Research, Delhi – said exporters’ earnings may increase, but this could be offset by higher import costs and slower export growth.
For common citizens, he said, it is the effect of inflation through which currency depreciation will be felt.
Asked about India’s growing trade deficit, Bhide said measures are needed to encourage exports and reduce the import bill at a time when global trade is slowing down. India’s trade deficit widened to US$ 26.72 billion in September, while exports declined 3.52 per cent to US$ 32.62 billion.
(with PTI input)
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