The Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said that India’s headline inflation continues to remain vulnerable owing to recurring and overlapping food price shocks.
“In these circumstances, monetary policy remains watchful and actively disinflationary to progressively align inflation to the target, while supporting growth,” the central bank chief said at the Symposium on Indian Economy 2023 organised by Institute of Indian Economic Studies (IIES), Tokyo.
Despite uneven monsoon showers and as outlook on food prices remain on edge amid a spike in global crude oil prices, in its October 2023 meeting, the Monetary Policy Committee (MPC) left its inflation forecast for this fiscal year unchanged at 5.4 per cent, a moderation from 6.7 per cent in 2022-23.
The panel has projected inflation for Q2, Q3 and Q4 at 6.4%, 5.6% and 5.2%, respectively.
The month of October, towards the end, witnessed surging prices of onion. Moreover, the prices rose nearly 75 per cent in the first week of November compared with the previous month. Notably, onions have a 0.64 per cent weight in the retail inflation basket.
India’s inflation eased to 5.5 per cent, falling in RBI’s band of 2-6 per cent, in September after peaking to 7.44 per cent in July and 6.83 per cent in August.
As of October, the MPC unanimously decided to keep the repo rate- the key lending rate- unchanged at 6.5 per cent for the fourth time in a row, also leaving its policy stance unchanged with focus on withdrawal of accommodation.
The RBI chief hinted that India- Japan together have many collaboration opportunities in frontier technologies including space technology, artificial intelligence, quantum computing, and resilient supply chains, and other areas.
“Linkage of fast payment systems of India and Japan may also be explored to leverage the power of fintech and make cross-border payments more efficient and less costly,” he said.
In his address in Japan, Das also spoke about India’s evolution as the third larges FinTech ecosystem. He mentioned the JAM trinity which is a combination of bank accounts (Jan Dhan), Aadhaar, and Mobile phone numbers which he said has boosted digitisation of financial services, and overall service delivery in the country.
The Unified Payments Interface (UPI) success story has become an international model, he said adding that the RBI has also commenced rolling out of the central bank digital currency (CBDC).
The RBI Governor also mentioned in his address how the central bank tackled challenges that followed in 2022 and COVID-19 and the Russia-Ukraine war and stated that it prioritised inflation over growth.
“The MPC quickly changed gears by prioritising inflation over growth, while changing its stance from being accommodative to withdrawal of accommodation in April 2022. The MPC then went on to increase the policy repo rate by 250 bps cumulatively between May 2022 and February 2023, to keep inflation expectations anchored, break the core inflation persistence, and contain second round effects,” Das said.
Shaktikanta Das further highlighted the uncertainties, including the Israel-Gaza war, surrounding the global economy. He said that policy making in such scenarios becomes extremely challenging with difficult trade-offs – growth versus inflation; price stability versus financial stability; and current exigency versus future sustainability.
He suggested that it is best to avoid any sense of complacency in such an environment.
“We remain agile and continue to fortify our macroeconomic fundamentals and buffers. Today, the confidence and trust in India’s prospects are at an all-time high,” he concluded.
