Upside risks to inflation remain, says RBI Deputy Governor Michael Patra

The Indian central bank has increased the policy rate by 140 basis points in the last three-and-a-half months, although it thinks inflation peaked in April

 

AUGUST 26, 2022 

Upside risks to Indian inflation still remain even as it has declined from its peak, according to Michael Patra, a deputy governor of the Reserve Bank of India (RBI).

“Although it (inflation) appears to be moderating from its peak of 7.8 percent in April this year, we would prefer to await more incoming data before we are convinced that this a durable trend,” Patra said in a speech on August 24.

While some easing of international commodity prices and supply chain pressures, both globally and domestically, are positive developments, upside risks remain in the form of potential second order effects and the transmission of input cost pressures to the sticky core component of inflation,” he added.

Patra delivered the speech at the SAARCFINANCE Seminar in New Delhi earlier this week. The speech was made public by the RBI on August 26.

India’s headline retail inflation rate, as measured by the Consumer Price Index (CPI), fell to 6.71 percent in July. Inflation had jumped to a near-eight-year high of 7.79 percent in April following a surge in global commodity prices after Russia invaded Ukraine in late February.

While CPI inflation in July was the lowest in five months, it has been above the RBI’s medium-term target of 4 percent for 34 consecutive months and spent seven straight months outside the central bank’s 2-6 percent tolerance range.

In the near-term, Patra said on August 24, India’s inflation trajectory is “heavily” dependent on geopolitical and global financial market developments and international commodity prices.

As per the RBI’s forecasts, CPI inflation is expected to average 7.1 percent in July-September, 6.4 percent in October-December, 5.8 percent in January-March 2023, and 5 percent in April-June 2023.

The deputy governor’s comments come after RBI Governor Shaktikanta Das told television channel ETNow on August 23 that inflation had peaked at 7.8 percent and the central bank wanted to bring inflation closer to its 4 percent target over a two-year period.