Disinflation Process To Be Slow And Protracted, Says RBI Governor Shaktikanta Das

Governor Shaktikanta Das said there have been signs of some softening in inflation in recent months, with the consumer price inflation coming down from the 7.8 per cent peak in April 2022.

Reserve Bank Governor Shaktikanta Das on Tuesday said the disinflation process is likely to be slow and lengthy, and it will take some time to reach the target inflation rate of 4 per cent. The remarks come a day after government data showed that retail inflation dropped to 4.25 per cent in May from 4.7 per cent in April. Das said there have been signs of some softening in inflation in recent months, with the consumer price inflation coming down from the 7.8 per cent peak in April 2022.

In his opening plenary address at the Summer Meetings organised by Central Banking in London, the RBI governor said, "While our inflation projection for the current financial year 2023-24 is lower at 5.1 per cent, it would still be well above the target. As per our current assessment, the disinflation process is likely to be slow and protracted with convergence to the inflation target of 4 per cent being achieved over the medium-term."

The rate-setting panel has eschewed providing any future guidance on the timing and level of the terminal rate recognising that explicit guidance in a rate tightening cycle is inherently fraught with risks, Das said. Adding that the central bank is mandated to maintain price stability while keeping in mind the objective of growth. It cannot be oblivious to growth concerns, given the high population and the necessity to reap the demographic dividend.

During the pandemic years even as inflation remained above the target but within the tolerance band, the RBI Monetary Policy Committee prioritised growth over inflation given the frail economic conditions and notwithstanding intermittent inflationary pressures from supply shocks, Das added.

"Proactive and coordinated response of fiscal and monetary policies nurtured a quick recovery, while various structural reforms related to banking, digitalisation, taxation, manufacturing and labour, implemented in the last few years, laid the foundation for strong and sustainable growth over the medium and long term," Das said, noting that real GDP growth bounced back after the contraction in FY21.

In FY24, the RBI is estimating real GDP growth to come at 6.5 per cent and India will remain among the fastest-growing large economies in 2023 in all likelihood, Das said.

He welcomed the government's continued thrust on capital expenditure, which is creating additional capacity and nurturing the much-awaited revival in the corporate investment cycle.

"We recognise that the likelihood of financial turbulence would be high if there is no price stability. This reinforces our belief in the complementarity of monetary policy and financial stability in the long run," he said.

The RBI has taken a slew of measures on the regulatory and supervisory front as well. These include a supervisory strategy that has seen a unification of supervisory architecture, ownership-agnostic and risk-focused supervision, and a shift from episodic to continuous supervision, the RBI governor noted.

Adding that without interfering with business decision-making at banks, the RBI has done a deep dive into the business models of banks and other lending entities and closely monitors their asset-liability mismatches and funding stability.

"We have a system of early warning signals that provide lead indications of risk build-up...We also remain engaged with the external auditors to flag issues that are relevant for their role," he added.