Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said India’s headline inflation remains vulnerable to recurring and overlapping food prices.
“Under these circumstances, monetary policy remains vigilant and actively disinflationary to gradually align inflation to the target while supporting growth,” the central bank chief said at the Indian Economy 2023 Symposium organized by the Institute of Indian Economic Studies (IIES). , Tokyo.
Despite uneven monsoon rains and as the outlook for food prices remains stark amid rising global oil prices, at its October 2023 meeting, the Monetary Policy Committee (MPC) left its inflation forecast for this fiscal year unchanged at 5.4 percent, a moderation of 6.7 percent in 2022-23.
The panel projected inflation for Q2, Q3 and Q4 at 6.4%, 5.6% and 5.2%, respectively.
The month of October, towards the end, witnessed increasing onion prices. Moreover, the prices rose almost 75 percent in the first week of November compared to the previous month. In particular, onions have a 0.64 percent weight in the retail inflation basket.
India’s inflation eased to 5.5 percent, falling within the RBI’s 2-6 percent band, in September after peaking at 7.44 percent in July and 6.83 percent in August.
Since October, the MPC has unanimously decided to keep the repo rate – the key lending rate – unchanged at 6.5 percent for the fourth time in a row, also leaving its policy stance unchanged with a focus on housing withdrawal.
The RBI chief suggested that India-Japan together have many cooperation opportunities in frontier technologies including space technology, artificial intelligence, quantum computing and resilient supply chains, among other areas.
“Linking of fast payment systems of India and Japan can also be explored to harness the power of fintech and make cross-border payments more efficient and less costly,” he said.
In his address in Japan, Das also talked about India’s development as the third largest FinTech ecosystem. He mentioned the JAM trinity, which is a combination of bank accounts (Jan Dhan), Aadhaar and Mobile numbers, which he said has accelerated digitization of financial services and overall service delivery in the country.
The success story of Unified Payments Interface (UPI) has become an international model, he said, adding that the RBI has also started rolling out the central bank digital currency (CBDC).
The RBI Governor also mentioned in his address how the central bank dealt with challenges that followed in 2022 and COVID-19 and the Russia-Ukraine war and stated that it prioritized inflation over growth.
“The MPC quickly shifted gears prioritizing inflation over growth, shifting its stance from being accommodative to easing accommodation in April 2022. The MPC then proceeded to increase the policy rate by 250 bps cumulatively between May 2022 and February 2023, to keep inflation expectations anchored, breaks the core inflation persistence and contains second round effects,” Das said.
Shaktikanta Das further highlighted the uncertainties, including the Israel-Gaza war, surrounding the global economy. He said that policy making in such scenarios becomes extremely difficult with difficult trade-offs – growth versus inflation; price stability versus financial stability; and current demand versus future sustainability.
He suggested that it is best to avoid any sense of complacency in such an environment.
“We remain agile and continue to strengthen our macroeconomic fundamentals and buffers. Today, confidence and trust in India’s prospects is at an all-time high,” he concluded.