Surprised by the Reserve Bank of India’s move to leave all the policy rates unchanged, one question that is in everyone’s mind is if the Central bank assessed the inflation risk appropriately.
Governor Shaktikanta Das in his post-policy press conference tried to allay the fears of the market by saying that the Monetary Policy Committee’s (MPC’s) inflation projection are realistic and that the committee as well as the RBI has done its homework on inflation before spelling out its projections.
“It is a matter of our credibility as well; we won’t give projections that are unrealistic. We have factored in all cross-currents and risks before coming up with this inflation number,” said the governor while interacting with the media.
The Central bank has projected the CPI inflation for 2022-23 at 4.5%. “The improving prospects for foodgrains production and the expected easing of vegetable prices on fresh winter crop arrivals are adding further optimism. Moreover, the softening of pulses and edible oil prices is likely to continue in response to strong supply side interventions by the Government and increase in domestic production,” the governor said in his statement earlier.
The MPC was, however, mindful of risk of the hardening of crude oil prices, which the RBI sees as a major upside risk to the inflation outlook.
When asked if the RBI is falling behind the curve when it comes to fighting the menace of inflation, Shakitkanta Das said that the character of inflation in India is different from that of others.
He said that all economies are addressing the issue of inflation in their own way. He also cited the example of the US and China, while the US is on tightening mode the latter is on loosening mode.
Elaborating on the point that the character of India’s inflation is different from other countries, deputy governor Michael Patra said, the inflation in the US is being driven by used cars, which is not a problem in India. In India, the food inflation is around 2.5-3.5%, while the same in the US is 6%.
Factors like wage growth driving core inflation in the US is not present in India.