MUMBAI: Highlighting the need to check prices, the Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday that taming inflation is the top priority for South Asian countries as high prices pose risk to growth and investment outlook.
Delivering keynote speech at an event organised by the International Monetary Fund (IMF), he said multiple external shocks in the form of COVID-related global supply chain disruptions, food and energy crisis following the war in Ukraine and financial market volatility due to aggressive monetary policy tightening have exerted sustained price pressures in South Asian economies, as in other parts of the world.
“For successful disinflation, credible monetary policy actions accompanied by targeted supply side interventions, fiscal, trade policy and administrative measures have become key instruments,” said Das. “While the recent softening of commodity prices and supply chain bottlenecks should help in lowering inflation, going ahead, risks to growth and investment outlook may rise if inflation persists at high level. Prioritising price stability may, therefore, be the optimal policy choice in the current context for the region,” he added.
During the first three quarters of 2022, food price inflation in South Asia averaged more than 20%. Rising levels of debt, alongside sustained price pressures, pose risks to the region’s economic growth and both must be contained, Das said. “The approach to disinflation, however, needs to be mindful of the rising risks to the growth outlook in an environment of deteriorating prospects for global growth and trade activity,” he said. The RBI has raised interest rates by cumulative 225 basis points since the start of the tightening cycle in April 2022 in its effort to tame inflation that remained above the tolerance zone for 10 straight months.
Apart from inflation, he said, reducing external debt vulnerabilities, moving focus to highly productive sectors, strengthening energy security, cooperation on a greener economy and increasing tourism should be focus areas for the region.