RBI Governor says inflation set to soften in 2023-24

Talking about global inflation, Das said it is easing but at a tardy pace as the global economic environment has changed dramatically. Das, along with the five other members of the Monetary Policy Committee, voted for a pause in rate hikes earlier this month.

The central bank, which effected six back-to-back hikes in the key short-term lending rate (repo) since May 2022 to check high inflation, decided to take a pause early this month. The cumulative rate hike since May 2022 is 250 basis points.

He stated that issues of geopolitics and high inflation continue to impact the outlook, the emergence of banking sector turmoil on both sides of the Atlantic and the sudden announcement of oil production cut by the OPEC+ countries have rendered the global outlook even more uncertain.

Das opined that there is better optimism about the rabi harvest despite the recent unseasonal rains. This could significantly reduce price pressures on rabi food crops, particularly wheat.

Further, the governor said prices of edible oils have moderated and the softening of global commodity prices from their peak levels a year ago is translating into lower input cost pressures for manufactured goods and services. These could result in some softening of core inflation going forward.

On milk prices and oil prices, he said it may remain firm in the lean summer season on tight demand-supply balance and high fodder costs. The rising uncertainty in international crude oil prices also warrants close monitoring.

Dr. Michael Debabrata Patra said the lessons of experience and empirical evidence show incontrovertibly that inflation ruling above 6 percent – as it has done through 2022-23 – is inimically harmful to growth.

Patra noted that the MPC must accordingly remain on high alert and ready to act pre-emptively if risks intensify to both sides of its commitment: price stability and growth.

Prof. Jayanth R. Varma opined that early warning signs of a possible slowdown are visible to a greater extent than in February on the growth front. In the current situation of high inflation, monetary policy does not have the luxury of responding to these growth headwinds.

However, Varma said policymakers must be vigilant against overshooting the terminal policy rate, and thereby slowing the economy to a greater extent than what is needed to glide inflation to the target.

Shashanka Bhide, the external member of RBI MPC, said the outlook for growth certainly is faced with external demand weakness. As far as inflation is concerned projections are for an inflation rate below 6 percent. So the concern really is that if the growth also slows down, and the inflation rate remains high, then that is certainly not something that is useful.

Ashima Goyal, a member of MPC and professor at IGIDR, said, "The monetary policy is going to be data-based. We know that there are various uncertainties regarding oil prices and monsoon, and so to that extent, until we are sure that we are moving towards the target in a sustainable manner, we cannot assure that there will be no further rise in repo rates. So that is why we don’t say it as a pause and that is why we have supported the stance this time of withdrawal of accommodation."