Monetary policy to be flexible: RBI chief

Tribune News Service

New Delhi, July 9

Reserve Bank of India chief Shaktikanta Das said the approach to monetary policy will be flexible and there will be regular calibration of policies to preserve and foster macroeconomic stability.

“If history is any guide, I am optimistic that our actions will usher in a new era of prosperity in the years ahead,” he said while speaking at the Kautilya Economic Conclave, organised by Institute of Economic Growth here on Saturday.

The recent upsurge in inflation, he said, is due to the “black swan event” the war in Europe, which has come on top of another such event—the Covid pandemic. The latest black swan event offers a classic example of the globalised nature of current inflation. Around 77 per cent of countries reported acceleration in inflation in 2021 and this proportion is expected to rise further to 90 per cent in 2022, according to the IMF’s latest projections.

While global factors have always been an important driver of domestic inflation, the last three years have witnessed a more protracted and sizeable role of global factors in proportions not witnessed in decades.

These factors have an even more conspicuous effect on net commodity importing countries like India. The current synchronised rise in inflation across economies is not a maiden occurrence in modern economic history, pointed out the RBI chief.

Amidst repeated supply shocks from oil prices in 1973 and 1979-80 and weather-related food shocks, countries were mired in stagflation with double digit inflation accompanying a rise in unemployment, he recalled.

While factors beyond control may affect inflation in the short run, its trajectory over the medium-term is determined by monetary policy. Therefore, monetary policy must take timely actions to anchor inflation and inflation expectations so as to place the economy on a strong and sustainable growth pedestal, he observed.