The Reserve Bank of India (RBI) Governor Shaktikanta Das says that the central bank is on the right track with respect to inflation and it is too early to revisit the inflation target of 4 per cent with a 2 per cent deviation on either side, in the current situation.
On Friday, speaking at a Bank and Economy summit in Mumbai, the RBI governor said, “I don’t think there is any need for any change. I would not think the target needs to be revisited. It is too early to shift the goalpost. The 4 per cent target has a certain meaning.”
“We had done our scenario analysis and found that inflation in the worst situation would be around 5 per cent in 2021-22. But then the war happened,” Das said, revisiting the central bank’s position during the second wave of the pandemic.
“We wanted the economy to have a safe landing, and the GDP to be above pre-pandemic levels. Law mandates RBI has to maintain inflation around 4 per cent keeping growth in mind. Growth had to be given primacy during pandemic times, but we did not lose sight of inflation. When prices went up due to the Ukraine war, we did not hesitate to take a decision by hiking rates out of turn. Looking back, I think we have been on the right course,” he said.
RBI’s Monetary policy committee (MPC) has the mandate to keep inflation in a 2 per cent to 6 per cent band with a target of 4 per cent.
The Governor said that the flexibility of the inflation framework facilitated the maintenance of the average CPI from 2016 to 2020 and kept it around 4 per cent.
Shaktikanta Das also said that the RBI needs to be very vigilant on core inflation. At the moment, we have to continue to focus on core inflation.
After remaining above the Reserve Bank of India’s upper tolerance threshold of 6 per cent since January 2022 in December the retail inflation rate eased to 5.72 percent from 5.88 percent the previous month, according to data released by the ministry of statistics and programme implementation. However, the core inflation has remained around 6.31 per cent.