Governor Shaktikanta Das stated in a piece published in the Times of India on Friday that although India’s central bank is on track to reduce prices, the retail inflation rate is expected to continue over the upper end of its legislated goal band till December.
“To lower inflation and inflation expectations, we are on pace. The CPI is anticipated to continue to be higher than the upper tolerance level through December. According to our present prediction, it is therefore anticipated to drop below 6% “actions,” said Das.
After reaching an eight-year high of 7.79 percent in April, retail inflation somewhat decreased in May, although it remained over the central bank’s tolerance level of 2–6 percent for the fifth consecutive month.
Despite the fact that supply-side forces are currently driving inflation, according to Das, monetary policy still has a significant impact on inflation because of households’ pessimistic outlook for prices.
“Expectations of inflation affect both families and companies, increasing the cost of food, manufactured products, and services. Even businesses would postpone their investment plans if they anticipate significant inflation “Added he.
Das said that the Indian economy is sound and is slowly recovering from the COVID-19 pandemic’s blow.
He said that the pressure on the rupee, which on Wednesday fell to a record low of 78.39 versus the dollar, was mostly brought on by the tightening of monetary policy in advanced nations in an effort to combat excessive inflation.
“Emerging market economies will see a capital outflow in such a circumstance. All rising market economies are experiencing it. This is nothing more than the monetary policy spillover from advanced countries “said he.
However, it should be noted that India has much stronger macroeconomic fundamentals than many other nations, with its foreign exchange reserves being about 2.5 times that nation’s short-term foreign debt.
In order to prevent rising inflationary pressure from spreading widely, India’s monetary policy committee (MPC) increased rates by 50 basis points earlier this month, following a 40-bps hike in May. In the upcoming months, more increases are predicted.