From 'wild elephant' to nearly 'tamed horse', how war on inflation is almost won

Under the FIT, the central bank has ensured that the Consumer Price Index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
RBI
RBIFile | Reuters
Updated on
3 min read

MUMBAI: RBI Governor Shaktikanta Das has offered some banter to the press when he quipped, in response to a media query, as to how the inflation description has moved from ‘a wild elephant’ till recently to a ‘nearly tamed horse.'

He said, “In a war, both elephants and horses are used and that if needed, the central bank will deploy again the arsenals from Arjuna to sharpen its attack and focus.”

When inflation was sticky for long and sticking around in double-digits, the governor used to repeatedly say that the RBI-MPC would not rest till the elephant is sent back to the forest and ensured that the wily animal remains there for a durable time, so that the economy grows at a higher pace sustainably longer.

"It is with a lot of effort that the inflation horse has been brought to the stable, which’s closer to the target within the tolerance band (4 per cent with 2 per cent of leeway either way) compared to its heightened levels two years ago,” the governor Das said in his monetary policy statement which was unveiled in a televised announcement.

He repeated the same phrase during an hour-long interaction with the media here on Wednesday.

“Now, we have to be very careful about opening the gate as the horse may simply bolt again. We must keep the horse under tight leash so that we do not lose control," Das emphasised.

The Reserve Bank of India on Wednesday retained the retail inflation projection at 4.5 per cent for fiscal 2025, with Das stressing that the central bank will have to closely monitor the price situation given the rising risks to imported inflation as crude prices have vaulted over 18 percent in the past one week following the flare-up war between Israel and Iran.

However, the RBI-MPC has retained the CPI projection for FY25 at 4.5 per cent, with Q2 at 4.1 per cent; Q3 at 4.8 per cent; and Q4 at 4.2 per cent. CPI inflation for Q1FY26 is projected at 4.3 per cent.

Unveiling the bi-monthly monetary policy, the Governor also said the Flexible Inflation Targeting (FIT) framework which has completed eight years since its introduction in September 2016, is a major structural reform of the 21st century India.

Under the FIT, the central bank has ensured that the consumer price index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

"The CPI print for the month of September is expected to see a big jump due to unfavourable base effects and pick-up in food price momentum, caused by the lingering effects of a shortfall in the production of onion, potato and gram in FY24, among other factors," Das said.

He further said the headline inflation trajectory, however, is projected to sequentially moderate in the fourth quarter of this year due to good kharif harvest, ample buffer stocks of cereals and a likely good crop in the ensuing rabi season.

Unexpected weather events and worsening of geopolitical conflicts constitute major upside risks to inflation. International crude oil prices have become volatile in October, Das added.

The governor also said food inflation pressures could see some easing later in this financial year on the back of strong kharif sowing, adequate buffer stocks and good soil moisture conditions which are conducive for rabi sowing.

Going forward, Das said there is a need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses. Retail inflation softened significantly in July and August, with base effect playing a major role in July. Food inflation experienced a certain degree of correction during these two months.

Das further said the developments since the August meeting of the MPC indicate further progress towards realising a durable disinflation towards the target. Despite the near-term upsides to inflation from food prices, the evolving domestic price situation signals moderation in headline inflation thereafter, he added.

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