India’s central bank is on track to lower prices, but the retail inflation rate is expected to remain above the upper end of its target range until December, Governor Shaktikanta Das said in a statement on Friday. an article from the The New Zealand Times.
“We are on track to lower inflation and inflation expectations. Until December, the CPI is expected to remain above the upper tolerance level. Thereafter, it is expected to fall below 6% according to our current projections,” Das said.
Retail price inflation eased slightly in May, after hitting an eight-year high of 7.79% in April, but remained above the central bank’s tolerance band of 2-6% for a fifth consecutive month.
Das said that despite current inflation being driven by supply-side factors, monetary policy still plays an important role when inflation rises because household price expectations are backward-looking.
“Inflation expectations influence not only households but also businesses and push up the prices of food, manufactured goods and services. If they expect high inflation, even businesses will postpone their inflation plans. investment,” he added.
Das also said India’s economy is stable and continues to recover steadily from the shock of the COVID-19 pandemic.
He said pressure on the rupee, which hit a record low of 78.39 against the dollar on Wednesday, was largely due to monetary policy tightening in advanced economies to tackle high inflation.
“In such a situation, there will be capital outflows from emerging market economies. This happens in all emerging market economies. It is nothing but the spillover of monetary policy actions into advanced economies “, did he declare.
But added that India’s foreign exchange reserves are quite strong at around two and a half times the country’s short-term external debt and that the country’s macroeconomic fundamentals are much better than those of many other countries.
India’s Monetary Policy Committee (MPC) raised rates by 50 basis points earlier this month, following a 40 basis point increase in May, to prevent mounting inflationary pressures from spreading. Further increases are expected in the coming months.