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EconomyRBI promises to bring inflation down to 4% in 2 years

RBI promises to bring inflation down to 4% in 2 years

Continuing with its worries about inflation, the Reserve Bank of India (RBI) has set a target of bringing down inflation close to 4% in 2 years, Governor Shaktikanta Das said today. “We have said earlier that we would like to bring down inflation over a time period of about two years or so,” Das told ET Now in an interview. “We are moving to 4% inflation in a steady manner without too much growth sacrifice.”

Inflation and inflation expectations are increasingly getting anchored, he added, stating that inflation has peaked and is expected to moderate going forward. However, there is “absolutely no room” for any complacency with regards to inflation, he said.

The data that RBI released on 12 August showed India's headline retail inflation rate, as measured by the Consumer Index (CPI), fall to a five-month low of 6.71% in July. However, it has now spent 34 consecutive months above the RBI’s medium-term target of 4% and seven straight months outside the central bank's 2-6% tolerance range.

As such, the central bank is only two months away from failing to meet its inflation mandate, which is deemed to occur when the average inflation is outside the 2-6% tolerance range for three straight quarters.

Members of the Monetary Policy Committee (MPC) pitched strongly for frontloading the rate hikes to quell inflationary pressures on the economy, according to the minutes of the panel's August meeting released on 19 August.

The MPC has hiked the repo rate by 140 basis points over the last three-and-a-half months. One bps equals one hundredth of a%age point.

“Our monetary policy is determined by domestic factors. Global factors are important so far as it impacts our domestic inflation. We are primarily governed by the domestic situation,” Das said.

Speaking on cryptocurrency, Das added that crypto is a big risk for small investors, but it is the benefits of the technology that must be capitalised upon. It won't work in favour of India, may work in favour of bigger and advanced economies. “I am happy we sounded those warning signals on crypto. I think a large number of people would have taken note of those warnings. I am anecdotally aware that people have either not invested or sold their investments in crypto because of our warnings,” he said.

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