RBI Monetary Policy: What may provide relief from inflation – Governor Shaktikanta Das says this

RBI Monetary Policy: Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said inflation is expected to remain elevated at around 6% in the second half of the fiscal 23. Das, while announcing the decision of the Monetary Policy Committee (MPC), said that the recent correction in global crude oil prices, if sustained, may ease inflation.

In particular, inflation has remained above the central bank’s tolerance level of 4% plus/minus 2% (upper limit 6%, lower limit 2%) over the past 8 months.

The central bank kept the inflation projection for FY23 at 6.7%, it said.

“The recent correction in global commodity prices, if sustained, may ease cost pressures in the coming months. Today inflation is around 7% and we expect it to remain elevated at 6% in the second half of year,” the governor said.

The extraordinary global circumstances that led to increased inflationary pressures have affected both advanced and emerging market economies, the governor said.

He added, “However, India is better placed than many of these economies.”

If high inflation is allowed to persist, it invariably causes second-order effects and distorts expectations, Das also noted.

Therefore, monetary policy must carry forward its calibrated action on policy rates and liquidity conditions consistent with the evolution of inflation growth dynamics, the governor said, adding that it must stay alert and agile.

The RBI today raised the benchmark lending rate by 50 basis points to 5.90%. This is the fourth consecutive rate hike after increases of 40 basis points in May and 50 basis points each in June and August. In all, RBI has raised the benchmark rate by 1.90 percent since May this year.

The RBI’s latest action follows the US Federal Reserve hammering out a third consecutive 0.75 percentage point interest rate hike, taking its benchmark rate to a range of 3 to 3.25 percent in beginning of this month.

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