NEW DELHI: The incidences of recurring food price shocks pose a risk to the anchoring of inflation expectations, which has been underway since September 2022 and of which the central bank will remain watchful, RBI governor Shaktikanta Das said on Tuesday.
“The role of continued and timely supply-side interventions, as being undertaken by the government, assumes criticality in limiting the severity and duration of such food price shocks. In these circumstances, it is necessary to be watchful of any risk to price stability and act timely and appropriately. We remain firmly focused on aligning inflation to the target of 4%,” Das said at the Delhi School of Economics (DSE).
A sharp increase in vegetable prices and supply-side shocks pushed retail inflation to a 15-month high of 7.4% in July, triggering fresh worries about price pressures. Das said experience in recent years has shown that supply shocks have become more frequent, with profound implications for inflation management and the anchoring of inflation expectations.
“A key risk of sustained high inflation is that it can de-anchor inflation expectations. It is, therefore, important to remain vigilant and take necessary steps in a calibrated and timely manner to keep expectations firmly anchored,” said Das.
He said RBI has been quick and calibrated while navigating through such turbulence. “We look through fleeting shocks but remain prepared to undertake policy responses if such shocks show signs of persistence and getting generalised. In such a scenario, monetary policy has to focus on containing the second-round effects,” said Das.
“Now, managing expectations through effective communication is a vital instrument in the monetary policy toolkit. In case of RBI, effective forward guidance during the easing cycle reinforced the impact of our conventional and non-conventional measures during the pandemic,” added Das.
