Inflation in India has moderated but still, there is a distance to cover, Reserve Bank Governor Shaktikanta Das said on Friday. The government has tasked the RBI to ensure that inflation remains at 4% with a margin of 2% on either side.
India’s retail inflation based on movement in the consumer price index (CPI) was at 3.65% in August, making it the second consecutive month of sub-4% inflation.
“Inflation has moderated from its peak of 7.8% in April 2022 into the tolerance band of +/- 2% around the target of 4%, but we still have a distance to cover and cannot afford to look the other way,” said Das in a keynote address at the Future of Finance Forum 2024 organised by the Bretton Woods Committee in Singapore.
The RBI’s projections indicate that inflation is likely to ease from 5.4% in 2023-24 to 4.5% in 2024-25 and 4.1% in 2025-26.
The Governor further said while global economic activity and trade have largely withstood downside risks, the last mile of disinflation has proved to be challenging, giving rise to financial stability risks.
“The momentum of global disinflation is slowing, warranting caution in easing monetary policy,” Das said adding monetary policy management by central banks has to be prudent and supply-side measures by the government have to be proactive.
Das noted that market expectations of rate cuts are now regaining momentum, especially after indications of a policy pivot from the US Fed, but the adverse spillovers from the ‘higher for longer’ interest rate scenario remain a contingent risk.
On the other hand, there are central banks that naturally and justifiably remain averse to premature loosening of policy before inflation has been durably reined in in their countries, he said.
Central banks in these countries need to remain watchful of their domestic inflation–growth balance and make policy choices, the RBI Governor added.
