Reserve Bank of India Governor Shaktikanta Das said Friday that while inflation in India has moderated, there is still “distance to cover”. The Governor’s statement follows a report from the National Statistical Office (NSO) showing that Consumer Price Index (CPI) inflation, or retail inflation, rose slightly to 3.65% in August from a five-year low of 3.60% in July.
The government has tasked the RBI with maintaining inflation at 4%, with a permissible margin of 2% on either side.
“Inflation has moderated from its peak of 7.8% in April 2022 into the tolerance band of +/- 2% around the target of 4%, but we still have a distance to cover and cannot afford to look the other way,” Das said in a keynote address at the Future of Finance Forum 2024, organized by the Bretton Woods Committee.
The RBI’s forecasts suggest inflation will decrease from 5.4% in 2023-24 to 4.5% in 2024-25, and further to 4.1% in 2025-26.
Das noted that while global economic activity and trade have largely absorbed downside risks, the final stages of disinflation remain challenging and pose financial stability risks. He emphasized the need for cautious monetary policy adjustments and proactive supply-side measures by governments.
He also mentioned that while market expectations for interest rate cuts are gaining momentum, partly due to signals of policy changes from the U.S. Federal Reserve, the risks from maintaining high interest rates persist.
Central banks must be cautious about premature policy easing before inflation is reliably under control, Das added.
Das also said that fiscal consolidation is progressing in the country, with public debt levels on a downward trend over the medium term. He highlighted that corporate performance has significantly improved, leading to deleveraging and robust profitability growth.
The RBI Governor also pointed out that the balance sheets of banks and non-banking financial intermediaries regulated by the RBI have also strengthened.