Image: Reuters Berita 24 English - India's central bank is on track to lower prices, but the retail inflation rate is likely to stay ab...
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| Image: Reuters |
Berita 24 English - India's central bank is on track to lower prices, but the retail inflation rate is likely to stay above the top end of its mandated target band until December, Governor Shaktikanta Das said in an article in the Times of India on Friday.
"We are on the right track to bring down inflation and inflation expectations. The CPI is expected to stay above the upper tolerance level until December. After that, our current projections show that it will drop below 6%," Das said.
After hitting an eight-year high of 7.79% in April, retail inflation slowed down a bit in May, but it stayed above the central bank's tolerance range of 2-6% for the fifth month in a row.
Das said that even though supply-side factors are driving inflation right now, monetary policy still plays a big role when inflation goes up because people's price expectations are based on the past.
"Inflation expectations affect not only households but also businesses and drive up the prices of food, manufactured goods, and services. If they expect inflation to be high, even companies will put off their plans to invest," he said.
Das also said that India's economy is stable and is slowly getting better after the COVID-19 pandemic.
He said that the pressure on the rupee, which hit a record low of 78.39 to the dollar on Wednesday, was mostly caused by the fact that advanced economies were tightening their monetary policies to fight high inflation.
"In this case, there will be a flow of money out of emerging market economies," he said. "This is happening all over emerging market economies, and it's just a result of how monetary policy is handled in advanced economies."
But he said that India's foreign exchange reserves are quite strong. They are about 1.5 times the country's short-term foreign debt, and the country's macroeconomic fundamentals are much better than those of many other countries.
India's monetary policy committee (MPC) raised interest rates by 50 basis points (bps) at the beginning of this month. This came after a 40-bps increase in May. This was done to keep inflationary pressure from spreading. In the coming months, prices are likely to go up again.
