Policy action needed to fill demand-supply gap: RBI
The Reserve Bank has said that policy interventions are necessary to bridge the demand-supply gap and bring down inflation on a sustained basis.
"In order to bring inflation down on an enduring basis and anchor inflation expectations there is a need for policy action on several fronts.
"...it is important to aim for nutritional security not only to harness the demographic dividend stemming from our sizable young population but also to contain food prices. This will require addressing the supply-demand imbalance in the agricultural sector and modernising the supply chain," Reserve Bank Executive Director Deepak Mohanty said during an event recently.
Wholesale Price Index (WPI) based inflation fell to 7.18 per cent in December from 7.74 per cent over the same period a year ago. However, it is much above the comfort level of RBI.
"The Reserve Bank's technical assessment suggests that the threshold level of inflation for India is in the range of 4 to 6 per cent. If inflation persists beyond this level, it could lower economic growth over the medium-term," he said.
He stressed to increase the depth of financial markets as well as calibrating monetary policy with growth-inflation dynamics.
"... while persevering with the steps to increase the depth of the financial market and addressing credit constraints, monetary policy needs to be calibrated to the
evolving growth-inflation dynamics so that we move towards our potential growth in a non-inflationary manner," Mohanty said.
On fiscal consolidation, he said it is important to maintain both domestic and external balance to avoid the risks of twin
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