While the outlook on price stability is clouded by external conditions, inflation appears to have peaked, Reserve Bank of India (RBI) Shaktikanta Das said on Friday. “As it would appear, I’m again reiterating, as it would appear, inflation appears to have peaked and it has moderated from 7.8% to 7.04%. Now it is at 7%. So it is a very volatile situation,” Das said, speaking on the sidelines of a banking conclave organised by Bank of Baroda (BoB).
The governor observed that commodity prices have softened in June, but they are still quite high. Whether they sustain at the current levels or whether they bounce back again or ease off will depend on a number of factors. Das attributed the difficulty in assessing the future trajectory of prices to uncertainties around whether advanced economies are headed towards recession, which could result in demand compression. “These are all uncertainties, but at the same time there’s stimulus being given by large economies. It’s an uncertain environment and we should not rush to any conclusion in such a great hurry,” he said.
The central bank’s research teams are analysing the evolving situation closely, Das added. The RBI has guided for 6.7% inflation during the current year. The monetary policy committee’s (MPC) target is 4% with a tolerance band extending two percentage points on either side. “The projection given till December is that it will be above 6%. Therefore, that is something we will also have to remember. But we are also reviewing it,” Das said.
The governor also stressed on the importance of staying focused on inflation targeting at all times. Inflation could lead to other consequences. For instance, negative interest rates could hurt appetite for saving and impact the overall financial system. “Let’s not shift the goalpost for convenience,” Das said, batting for a continuance of the flexible inflation targeting framework even in periods of volatility.