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  Opinion   Edit  06 Oct 2023  AA Edit | RBI keeps its focus on inflation

AA Edit | RBI keeps its focus on inflation

THE ASIAN AGE.
Published : Oct 7, 2023, 12:05 am IST
Updated : Oct 7, 2023, 12:05 am IST

RBI governor Shaktikanta Das said the Central bank will auction bonds to suck out excess liquidity from market to tame inflation.

RBI governor Shaktikanta Das. — PTI photo
 RBI governor Shaktikanta Das. — PTI photo

As expected, the Reserve Bank of India-led Monetary Policy Committee (MPC) has left key policy rates such as repo and reverse repo unchanged, signalling its intent to keep its focus on fighting inflation. 

Retail inflation has declined from a 15-month-high of 7.44 per cent in July to 6.83 per cent in August, but it remains 83 basis points above the central bank’s comfort zone. Food inflation also still remains in double digits. Food price index is likely to rise further because of sub-normal monsoon and muted sowing of oilseeds and pulses in kharif season, which could increase inflation further.

In spite of India emerging as the fifth largest economy in the world, the average income per person still remains one of the lowest at Rs 98,374 per year as on March 31, 2023, which would translate into a monthly income of Rs 8,197. With such an abysmal income, Indian families continue to spend most of their family income on purchasing food. So it is obvious and commendable that the Reserve Bank of India has declared that fighting inflation would be its primary objective in the foreseeable future.

RBI governor Shaktikanta Das said the Central bank will auction bonds to suck out excess liquidity from market to tame inflation. While intent is good, it is difficult to fathom how a pause in policy rates or controlling liquidity could bring down food inflation, which was caused mainly because of supply shortages. Central banks across the world find themselves helpless in addressing supply side inflation. Governments — both at the Centre and states — should work together to devise a mechanism to ensure that the poor and lower middle classes — who are particularly vulnerable to inflation — are protected from price rise. If the food inflation was not controlled, it will have a cascading effect on the headline inflation affecting the overall growth of the economy.

Tags: reserve bank of india (rbi), inflation, aa edit