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Inflation Level Warrants Appropriate Monetary Policy Response, Says RBI Governor

Sustained high inflation, unless addressed effectively, could result in unanchoring of inflation expectations and their second order effects," Shaktikanta Das said in the minutes of the central bank's monetary policy meeting held earlier this month

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The minutes of the latest RBI bi-monthly monetary policy meeting on Friday revealed that the central bank still sees inflation as “unacceptably and uncomfortably” high even though it has plateaued since its recent peak.

“Sustained high inflation, unless addressed effectively, could result in unanchoring of inflation expectations and their second order effects," Shaktikanta Das said in the minutes of the central bank's monetary policy meeting held earlier this month.

"This necessitates appropriate monetary policy response to prevent upward drift in inflation from the target rate,” he added.

MPC Member Shashanka Bhide said in the minutes that prolonged Russia-Ukraine conflict and disruptions in supplies, especially for energy and food commodities are a major source of uncertainty for price trends.

On Aug. 5, the RBI-led Monetary Policy Committee had increased the repo rate by 50 basis points to 5.4 per cent, taking the policy rate to pre pandemic levels in a bid to cool down inflation.

Retail inflation in India had eased to 7.01 per cent in June, but the print stayed over the RBI's tolerance ceiling of 6 per cent for the sixth consecutive month. Consumer prices in India had surged to an eight-year high at 7.80 per cent in April. The wholesale inflation has been in the double-digit for 15 consecutive months.

The MPC members, except for Jayanth R. Varma, had also voted for remaining focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

Deputy Governor Michael Debabrata Patra said the global outlook has become increasingly uncertain and tilted by downside risks. 

He flagged global growth concerns and said the probability of a recession or hard landing has risen to levels that preceded actual recessions in the past.

The "elephant in the room" is the unrelenting strength of the US dollar which has risen by over 8.3 per cent since March 31, 2022 just to set up a numeraire, he said.


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reserve bank of india inflation