Shaktikanta Das said that the central bank is firmly focused on bringing down inflation to 4 per cent.
Reserve Bank Governor Shaktikanta Das said that the central bank is firmly focused on bringing down inflation to 4 per cent, adding that monetary policy must be forward-looking. He stated that taking a policy approach that only looks at the past can lead to problems while using the analogy of driving a car on a road with potential hazards to illustrate his point. Shaktikanta Das said that the driver must be able to see ahead and adjust the speed of the car accordingly and if the driver reacts too late to a speed bump, they could cause an accident.
The RBI Governor said that the RBI remains prepared to undertake policy responses to deal with supply shocks which have become more frequent with profound implications. While speaking at the ‘Art of Monetary Policy Making: The Indian Context’ at Delhi School of Economics (DSE) Diamond Jubilee Distinguished Lecture, Shaktikanta Das said that the current episode of high global inflation and preceding overlapping shocks of the pandemic and Russia-Ukraine war have raised significant issues and challenges for the conduct of monetary policy.
He further said that the monetary policy framework in India has evolved in line with the developments in theory and country practices, the changing nature of the economy and developments in financial markets. Within the broad objectives, the relative emphasis on inflation, growth and financial stability has, however, varied across monetary policy regimes since independence, he said.
The RBI has adopted a prudent approach and taken several initiatives to revamp the regulation and supervision of banks, NBFCs and other financial entities by developing an integrated and harmonised architecture, Shaktikanta Das said.
“The Reserve Bank has been quick and calibrated while navigating through such turbulence. We look through fleeting shocks but remain prepared to undertake policy responses if such shocks show signs of persistence and getting generalised,” he said.
“We will remain watchful of this also. The role of continued and timely supply-side interventions, as being undertaken by the government, assumes criticality in limiting the severity and duration of such food price shocks. In these circumstances, it is necessary to be watchful of any risk to price stability and act timely and appropriately. We remain firmly focused on aligning inflation to the target of 4.0 per cent,” he added.
Further, the RBI Governor said the recurring food price shocks pose a risk to anchoring inflation expectations. Consumer price-based inflation (CPI) rose to a 15-month high of 7.44 per cent in July from 4.81 per cent in June, primarily driven by a rise in prices of vegetables, cereals, pulses, spices and milk and products. “The frequent incidences of recurring food price shocks pose a risk to anchoring of inflation expectations, which has been underway since September 2022. We will remain watchful of this…,” Shaktikanta Das said.
The Reserve Bank has been mandated to maintain price stability, keeping in mind the objective of growth. Price stability has been numerically defined as maintaining a headline CPI inflation target of 4.0 per cent with a tolerance band of +/- 2 per cent.
(With PTI inputs)
Source:financialexpress.com