Front-loaded rate hike reduces need for subsequent action, says RBI deputy governor Patra – Times of India

Mumbai: Deputy Governor of Reserve Bank of India Michael Petra The further increase in interest rates to contain inflation will reduce the need for subsequent hikes, the U.S. said. In the short term, however, he said the inflation trajectory depends on geopolitical eventsGlobal commodity prices, and the development of the global financial market.
“Our role has changed in recent years. From lenders of last resort, we have become saviors of first resort. Hence, our response to inflation shocks such as the ones we are facing today, is the management and credibility of expectations. If the credibility is high and the shock is transient, inflation returns to equilibrium without the need for any monetary policy action,” said Patra, the Lieutenant Governor in New Delhi on August 24, 2022. Was speaking at SAARCFINANCE symposium organized by India.Released a copy of the speech reserve Bank of India on Friday.
RBI has projected inflation at 6.7 per cent for the current financial year, while the growth rate in the index has come down to below 6% in the fourth quarter.
The deputy governor’s comments indicate that the pace of rate hikes should not be uniform until the target is achieved. Patra said, “Repeated supply shocks – which we are facing now – trigger second round of impacts through cost escalation, expectations, exchange rate and demand channels, following a pre-emptive monetary policy action.” guarantee.” According to the governor, even though the RBI has gained credibility in its ability to tackle inflation, monetary policy may not see the effects of the second round of repeated supply shocks. “If the inflation target is breached for a longer period, it could destabilize expectations and eventually get reflected in higher inflation. Higher credibility can reduce – not an option – the response of monetary policy to the effects of the second round of repeated supply shocks,” Patra said.
“Our experience is that by taking monetary policy actions forward, credibility is demonstrated by showing commitment to inflation targets. Another dimension of monetary policy credibility is its response time. Delays in monetary policy response reflect credibility. And losses happen, there is no bearing on inflation expectations and ultimately, higher inflation results with higher sacrifice of growth,” Patra said.