24 Jun 2022

Retail Inflation May Exceed Top Of RBI Band Until December: Shaktikanta Das

India's central bank is on course to bring down prices but the retail inflation rate is likely to remain above the top end of its mandated target band until December, Governor Shaktikanta Das said in an article in the Times of India on Friday.

"We are well on our way to lowering inflation and expected inflation. By December, CPI is expected to remain higher than the high tolerance level. After that, it is expected to fall below 6% as our current estimate," Das said.

Commodity inflation declined slightly in May, after touching an eight-year high of 7.79% in April, but remained above the central bank tolerance rate of 2-6% for the fifth consecutive month.

Das said that despite the current inflation driven by supply chain factors, monetary policy still plays a key role in inflation as domestic inflation approaches.

"Expected inflation affects not only households but also businesses and increases prices for food, goods and services. If they expect inflation to be high, even companies will postpone their investment plans," he added.

Das also said the Indian economy is stable and continues to recover slightly from the shock of the COVID-19 epidemic.

He said the pressure on the rupee, which reached a record low of 78.39 against the dollar on Wednesday, was largely due to strong monetary policy in the developed economy to cope with inflation.

"In such a situation, there will be an outflow of funds from emerging market economies. It is happening in emerging economies. This is nothing but the effects of monetary policy on developed economies," he said.

But he added that India's foreign exchange earnings are about two and a half times stronger than the country's short-term foreign debt and the foundations of the country's largest economy are much better than in many other countries.

India's monetary policy committee (MPC) raised prices by 50 points earlier this month, following an increase of 40-bps in May, to prevent inflationary pressures from becoming a broad base. Further mountain climbing is expected in the coming months.

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