The sudden rise in the retail inflation numbers in the last few months has become worrisome for the whole country. The government is of the view that the RBI’s move of increasing repo rate by 4 per cent would bring down the inflation by decreasing the demand.
“We don’t want the food inflation to go up further,” said one official. “This has to be seen as a monetary policy problem. We had a kind of expansionary monetary policy due to the Covid-19 pandemic, but the government will have to take certain measures to curb inflation,” stated another official.
“Wherever support is needed to control inflation, we will provide it,” the ministry official declared. He further added that wherever the government sees inflationary pressure, necessary measures are taken.
High Inflation has a discretionary impact on the economy. It reduces the demand for goods and services offered by MSME’s and big suppliers. At present, India’s policymakers are under serious pressure to manage rising inflation. The ongoing Russia-Ukraine conflict has added fuel to the fire, increasing the global commodity prices.
Additionally, there has been tightening monetary policies and rollback of subsidies as central banks are looking to exit the easy money regime. Growth recovery remains stagnant, which further complicating the job of policymakers.
Since Q4 FY22, consumer price index (CPI) inflation has exceeded RBI’s upper threshold of 6 per cent. In the next few months, top economists expect CPI inflation to average 6.7 per cent, which will be persistent in FY23 as well. Both monetary and fiscal policies are required to work together in order to fight inflation in a coordinated manner.
So far, RBI has taken a few steps such as normalizing policy first by stopping G-SAP (G-Sec Acquisition Programme) and has even reduced liquidity via forex sales and dollar-rupee sell-buy swaps. Policy rate hike has also been initiated by the central bank. The RBI is further expected to hike rates by another 25-50 bps in the coming months to reduce inflation.
“In the sequence of priorities, we have now put inflation before growth. The time is appropriate to prioritize inflation ahead of growth,” said RBI governor Shaktikanta Das, during a recent monetary policy announcement. As per economists, an immediate respite from the current inflation is highly unlikely for the next few months.