‘Unacceptably, Uncomfortably High’: RBI Governor On Unabating Inflation

Amid raging concerns over price rise, Reserve Bank of India (RBI) governor Shaktikanta Das has said that though inflation moderated and plateaued since April, it remains “unacceptably and uncomfortably high”.

According to a statement issued on Friday, Das made the remarks at the Monetary Policy Committee (MPC) meeting held between August 3 and 5.

He said that since the last MPC meeting in June, there has been a significant slowdown in the global economy but that it is likely to grow by only 3.2 per cent in 2022 according to the International Monetary Fund (IMF).

“At the same time, global inflation has hardened further and is projected to remain elevated and persist for longer at around 6.6 per cent for advanced economies (AEs) and 9.5 per cent for emerging market and developing economies (EMDEs) (IMF, July 2022),” Das said in the statement.

He added that on the domestic front, “though inflation has moderated and plateaued since its recent peak of April 2022, it remains unacceptably and uncomfortably high”.

“The high level of inflation continues to be broad-based with 13 out of 23 CPI sub-groups/groups, comprising close to 60 per cent of the CPI basket, registering more than 6 per cent inflation in June 2022. Going forward, though there are early indications that inflation might have peaked in April, significant uncertainties remain on account of adverse global spillovers coming from simmering geopolitical tensions, volatile global commodity prices and financial markets,” the RBI governor said.

Das further said that despite the expectations that let-up in global food and industrial metals prices will lower imported inflation, US dollar appreciation could “offset some of the gains”. He said elevated living costs can also foment spiralling of wage prices.

“Sustained high inflation, unless addressed effectively, could result in unanchoring of inflation expectations and their second order effects. This necessitates appropriate monetary policy response to prevent upward drift in inflation from the target rate,” Das added.

During the meeting, the MPC decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent with immediate effect. The standing deposit facility (SDF) rate stands adjusted to 5.15 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.

The MPC also decided to stay focused on the withdrawal of accommodation to make sure that inflation remains within the target going ahead, while supporting growth and development.

The 37th MPC meeting was attended by all members of the committee, including Shashanka Bhide, honorary senior advisor, National Council of Applied Economic Research, Delhi; Rajiv Ranjan, executive director (the officer of the Reserve Bank nominated by the Central Board under Section 45ZB(2)(c) of the Reserve Bank of India Act, 1934); Michael Debabrata Patra, deputy governor in charge of monetary policy, among others. Das chaired the meeting.