Challenge of high inflation still remains: RBI Governor

Reserve Bank Governor Shaktikanta Das on Wednesday said the frequent food price spikes pose a risk to anchoring of inflation expectations,which has been underway since September 2022, and called for timely supply side measures to limit such shocks.Delivering the Lalit Doshi Memorial Lecture in Mumbai, Das said vegetable price shocks are short term in nature and the monetary policy can wait for the “dissipation” of the first-round effects of the current spate of shocks.However, the Reserve Bank of India (RBI) will be on guard to ensure that second order effects in the form of generalisation and persistence are not allowed to take hold, he said.

Das stressed that the RBI will be watchful on this front.“The role of continued and timely supply side interventions assumes criticality in limiting the severity and duration of such shocks,” the Governor, who heads the six-member rate setting panel of the RBI, said.He also reiterated that the RBI will remain firmly focused on aligning inflation to the target of 4 per cent and the interest rates are likely to stay elevated in the country for long.The RBI has been opting for status quo on rates in recent months after tightening them since mid-2022 as a response to the runaway inflation.The headline inflation came down to 4.3 per cent in May but has since been rising, and also breached the upper tolerance level of 6 per cent in July because of the jolt from vegetable prices, particularly tomatoes.

On the macroeconomic front, Das said India’s financial sector continues to be resilient and healthy but underlined that there is no room to be complacent.Forex reserves of over USD 600 billion present a strong umbrella against any event like that of a cyclical capital outflows, Das said.It was this “umbrella” which led to an orderly depreciation of the rupee and ensured that the domestic currency was less impacted when compared to global peers after the start of the Ukraine invasion by Russia, he added. He said India stands out as a growth engine for the world but needs to focus on agriculture, technology, demographics, manufacturing, services and startups sectors to sustain it at high levels for longer periods.