In a recent announcement, the Reserve Bank of India (RBI) has underscored the critical importance of addressing high inflation as a means to maintain macroeconomic stability and promote sustainable growth. RBI Governor Shaktikanta Das has reiterated the central bank’s unwavering dedication to achieving a consistent 4% inflation target while keeping the benchmark interest rates unchanged for the fourth consecutive meeting.
Governor Das emphasized that the Monetary Policy Committee (MPC) remains steadfastly committed to aligning inflation with the 4% target. The MPC has reached a majority consensus to withdraw accommodation, thereby prioritizing inflation alignment while concurrently supporting economic growth.
Despite witnessing a decline in core inflation (CPI excluding food and fuel components), the overall inflation outlook remains shrouded in uncertainty. Factors contributing to this uncertainty encompass reduced kharif sowing for essential crops, diminished reservoir levels, and fluctuations in global food and energy prices. The MPC expresses concern about the possibility of recurrent food price shocks potentially leading to sustained headline inflation. Nevertheless, the Indian economy has exhibited commendable resilience.
Taking into account the evolving dynamics between inflation and growth, along with the cumulative policy repo rate hike of 250 basis points, the MPC has decided to maintain the policy repo rate at 6.50% in the current meeting. The MPC remains vigilant and stands ready to implement timely policy measures as required to align inflation with the target and anchor inflation expectations.
Governor Das acknowledged several risks to the economic outlook, including geopolitical tensions, a global economic slowdown, financial market volatility, and uneven monsoon rains. These factors necessitate a diligent monitoring of incoming data and a discerning approach to distinguishing between durable and transitory elements of price shocks.
RBI has retained its real GDP growth forecast for the fiscal year 2023-24 at 6.5% and maintained its average CPI inflation projection for the current fiscal year at 5.4%. However, the MPC has revised its headline inflation projection for the second quarter of the fiscal year upward by 20 basis points to 6.4%.
Governor Das reiterated that RBI’s inflation target remains firmly at 4%, not within the range of 2 to 6%. The central bank is determined to actively pursue anti-inflationary measures while simultaneously supporting growth in pursuit of this target.
RBI will actively manage liquidity in accordance with its monetary policy stance and conduct Open Market Operations (OMO) sales as deemed necessary. The central bank maintains a vigilant eye on emerging trends in the financial sector and expects banks and non-banking financial companies (NBFCs) to reinforce their internal surveillance mechanisms.