RBI Deputy Governor Patra said there are signs that inflation may be peakingSummit in PHDCCI in a session on ‘Geopolitical Spill-over and Indian Economy’
Highlight
- RBI has already raised the key policy rate by 90 basis points to 4.9 per cent in May and June
- RBI hikes benchmark repo rate in its bi-monthly monetary policy review
- The government has tasked the RBI to ensure that inflation remains at 4% with a deviation of 2 per cent on either side
RBI Deputy Governor Michael Debabrata Patra on Friday exuded confidence that monetary policy action will be more lenient than the rest of the world, as inflation is expected to fall below 6 per cent in the January-March quarter of the current fiscal. The Reserve Bank has already raised the key policy rate by 90 basis points to 4.9 per cent in May and June to tame high inflation mainly due to supply disruptions caused by the Russo-Ukraine war.
Speaking at a session on ‘Geo-Political Spill-overs and Indian Economy’ at PHDCCI, Patra said there are indications that inflation may be peaking. “As monetary policy works in the economy… Inflation is expected to fall back to the threshold in the fourth quarter of 2022-23 and fall further next year. This is just a baseline scenario,” he said. That because of the initiatives taken so far, inflation could fall “quickly and rapidly”.
“Therefore, in this world of global inflationary crisis, it is probably better to look at the change in inflation and not the level,” said the deputy governor, who looks after the monetary policy department in the RBI. He is also a member of the Monetary Policy Committee (MPC), which sets the key policy rate (repo). The government has tasked the RBI to ensure that inflation remains at 4 per cent with a deviation of two per cent on either side.
Retail inflation based on the Consumer Price Index (CPI) declined to 7.04 per cent in May from 7.8 per cent in April, staying above the RBI’s limit of 6 per cent for the fifth consecutive month. “Against this background, it is our hope that the monetary policy action required in India will be more lenient than anywhere else in the world and that we will be able to bring inflation back on target within a period of two years. If the monsoon brings along This is a more benign outlook on food prices, India would have overcome the inflation crisis earlier too,” he said. Noting that the fall in inflation would be very “annoying”, Patra said that India “will be able to tilt the trajectory of inflation in the future and thus win this war”.
Earlier this month, the Reserve Bank in its bi-monthly monetary policy review raised the benchmark repo rate – at which it lends short-term money to banks – from 0.50 per cent to 4.90 per cent to rein in sharply rising prices. This followed an off-cycle meeting on May 4, when the central bank hiked the repo rate by 0.40 per cent. RBI had raised the inflation forecast for the current fiscal to 6.7 per cent from its earlier estimate of 5.7 per cent. The next meeting of the MPC is scheduled from August 2-4, 2022.
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