A member of India’s monetary policy committee (MPC) has highlighted the significance of stabilizing inflation within the central bank’s tolerance band on a sustained basis. The committee member, Jayanth Varma, emphasized the need for India’s inflation to be brought within the 2 percent to 6 percent range before the country can consider easing its war on inflation. This comes amid rising food inflation, particularly driven by vegetable prices, which propelled headline inflation to 7.44 percent in July.
Varma, in an interview with the Reuters Global Markets Forum (GMF), stressed the urgency of aligning inflation with the Reserve Bank of India’s (RBI) comfort range. He noted that focusing on the medium-term target within the 4 percent center of the band becomes more relevant when projected inflation consistently drops below 5 percent. The real repo rate, Varma added, tends to become excessively high under such conditions.
Analyzing the transitory nature of food inflation, Varma linked it to the current restrictive monetary policy. He expressed his expectation for August’s inflation levels to be in line with those of July, given the current policy stance. Varma acknowledged that rural demand and the impact of a poor monsoon play significant roles in shaping inflation trends. The interconnectedness of these factors calls for a cautious monitoring approach.
However, Varma cautioned against an excessive growth sacrifice in the pursuit of bringing inflation back to the center of the tolerance band. Finding the right balance between inflation control and economic growth is crucial to maintaining stability and promoting sustainable development.
Anticipating a downward trajectory in inflation from the next quarter, Varma’s comments reflect a nuanced understanding of India’s inflation dynamics and the challenges associated with maintaining price stability while supporting economic activity.
In recent developments, India’s MPC opted to keep policy rates unchanged in its most recent meeting. RBI Governor Shaktikanta Das also provided insights into the anticipated easing of vegetable prices by September, which could play a role in stabilizing food inflation.
As India navigates the intricacies of inflation management, the insights shared by MPC member Jayanth Varma underscore the need for a comprehensive and balanced approach that ensures price stability without compromising long-term growth prospects.