Governor of the RBI Warns: There Is No Room for Error in Managing Inflation

Governor of the Reserve Bank of India (RBI) Shaktikanta Das emphasized the serious difficulties and possible repercussions of errors in inflation management in a critical speech on Tuesday. Das underlined the need for uncompromising precision and care even in the face of India’s inflation appearing to be trending downward.

India’s annual retail inflation dropped from 4.83% in April to 4.75% in May. It is still higher than the central bank’s medium-term objective, though. “A single wrong move in handling inflation can lead to significant disruptions,” Das cautioned. “Regaining stability after such a misstep would be more costly and time-consuming.”

Das emphasized the significance of continuing to have a distinct and unwavering focus on reducing inflation. “We cannot afford to make any mistakes or policy errors,” he said. “Any distractions at this stage will severely compromise growth.”

Das emphasized the possibility of major weather-related shocks that could raise inflation back above 5% even in spite of the current decrease in inflation. He gave assurances that the RBI is still dedicated to achieving its goal for inflation while maintaining strong economic development.

Based on his optimistic assessment of India’s economic growth trajectory, Das projected a growth rate of 7.2% for the current fiscal year, which ends in March. He predicted that India is headed for consistent growth of about 8%, which would represent a significant fundamental change in the country’s economy. He sent out a strong warning that this expansion might be derailed by any miscalculation in monetary policy.

Speaking at the Bombay Chamber of Commerce’s Annual General Meeting, Das supported the monetary policy committee’s (MPC) choice to maintain the 4% inflation target. He underlined the need to manage inflation by avoiding policy mistakes. Because of worries about inflation, the MPC recently kept the policy interest rate at 6.5% for the eighth time in a row.

Das likened the careful management of inflation to a game of chess, in which a single mistake might lead to an eventual defeat. “In the battle against inflation, a single wrong move can throw us off track, and regaining our footing will be costly,” he stated.

Assuring that the Indian economy is not slowing down, Das highlighted encouraging economic statistics. He cited unequivocal proof of rising capital spending by the private sector, especially in industries like steel and cement. He underlined that the economy must be driven by multisectoral growth.

Das also mentioned how desirable a moderate current account deficit (CAD) would be. For the first time in ten quarters, India posted a current account surplus in the March quarter of $5.7 billion, or 0.6% of GDP. Comparatively speaking, this is better than a CAD of $1.3 billion, or 0.2% of GDP, in the same time the previous year and $8.7 billion, or 1% of GDP, in the quarter ending in December 2023.

Das concluded by restating the RBI’s resolve to control inflation with a disciplined and targeted strategy in order to maintain steady and sustained economic growth.