Inflation: Will the RBI’s fight against inflation slow India’s economic recovery?

Fighting inflation shouldn’t come at the expense of economic growth seems to be the RBI’s approach, which manages the delicate balancing act of cutting prices even if the economy isn’t quite out of the woods yet.

“It can’t be a situation where the surgery is successful and the patient is dead,” RBI Governor Shakktanta Das said in an exclusive interview with The Economic Times.

The RBI governor justified the off-cycle announcement of a rate hike by saying the move was deserved to avoid a major June policy shock.

Das said that fighting inflation is currently the top priority for the RBI as it affects the public good. He added that subsequent hikes would depend on the revised inflation forecast that the MPC will release in June.

Many have pointed out that the delay in the RBI’s response could mean more aggressive rate hikes that would further jeopardize India’s economic recovery. High inflation could also impact private consumption, a key driver of economic growth.

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“There are clear signs of an upturn in demand and private consumption. There are also signs of a recovery in private investment. Our growth scenario looks far more comfortable and better than other countries,” Das said.

The RBI had revised its growth forecast down to 7.2% in April from 7.8% previously.

Underlining the uncertainties in the global economy and geopolitical situation, the governor said India is better off than some of the advanced economies in terms of inflation.

“Each central bank has to take their own call based on the local situation… (in) advanced countries the (inflation) target is 2% and it (current inflation) is 6 or 7 or 8%. For them, it is a bigger concern. In India 7.8% against our upper tolerance band of 6%. India is better off,” said the governor.

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