“Inflation has been brought within the target band of 2-6%, but our target is 4%. And over the last several monetary policy meetings, we have been reiterating the importance to stay the course and not get carried away by some dips in inflation,” Das said at a forum by The Bretton Woods Committee in Singapore.
India’s retail inflation rose to 3.65% in August, up from a five-year low of 3.54% the previous month. Food inflation, which makes up about half of the overall Consumer Price Index (CPI) basket, climbed to 5.66% from July’s 13-month low of 5.42%, according to the data.
While headline inflation remains within the Reserve Bank of India’s (RBI) tolerance range of 2-6%, the central bank aims to bring it down to 4% on a durable basis. In August, RBI Governor Shaktikanta Das noted that the easing of inflation in the second quarter (from 4.9% in the first) due to a favorable base effect could reverse in the coming quarters. Although India may benefit from this base effect in the third quarter, it is expected to fade in the future, he added.
India, one of the world’s fastest-growing economies, has the potential to achieve growth above 7.5%, according to Governor Shaktikanta Das. He also urged global monetary authorities to stay cautious and adaptable, as inflation remains a threat despite having stabilized in many regions.
Das mentioned that emerging markets, including India, could benefit from the easing of price growth, especially as the US Federal Reserve prepares to relax its monetary policies. He clarified that RBI’s intervention in currency markets is meant to curb volatility, not set a fixed value for the rupee.The RBI has maintained its benchmark interest rate for over 18 months. Das warned against lowering rates prematurely, citing volatile food prices as a continuous inflation risk. Economists predict the RBI may not reduce borrowing costs until later in the year, potentially following any adjustments by the Federal Reserve. Some suggest lowering borrowing costs to support urban consumer demand and economic growth.