In a highly anticipated speech at the prestigious Summer Meetings organized by Central Banking in London, Reserve Bank Governor Shaktikanta Das made a compelling case for a slow and protracted disinflation process in India. Highlighting the current assessment, Das predicted a gradual convergence to the inflation target of 4 percent over the medium-term. These remarks come on the heels of official data released yesterday, revealing a notable cool-down in headline inflation to 4.25 percent for the month of May.
Das acknowledged the signs of inflation softening over recent months, with consumer price inflation witnessing a decline from its peak of 7.8 percent in April 2022. However, he cautioned that despite the Reserve Bank of India’s (RBI) inflation projection for the current financial year 2023-24 being lower at 5.1 percent, it would still surpass the desired 4 percent target.
Drawing attention to the rate-setting panel’s cautious approach, Das explained their decision to refrain from providing specific guidance on the timing and level of the terminal rate. Recognizing the inherent risks associated with explicit guidance in a rate tightening cycle, the RBI aims to maintain price stability while considering growth objectives. Das emphasized that the central bank cannot afford to overlook growth concerns, particularly given India’s large population and the imperative to capitalize on the demographic dividend.
During the pandemic years, the RBI prioritized growth, even as inflation persisted above the target, albeit within the tolerance band. Das underscored the Monetary Policy Committee’s steadfast commitment to fostering growth over containing inflation, especially during the challenging economic conditions in 2020 and 2021. Despite intermittent inflationary pressures arising from supply shocks, the central bank remained resolute in its support for economic recovery.
As India navigates the complex economic landscape, the RBI’s measured approach seeks to strike a delicate balance between containing inflation and promoting sustainable growth. With the disinflation process expected to unfold gradually, the central bank’s commitment to ensuring price stability while fostering economic development remains steadfast.
