The Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday stressed the importance of an unwavering commitment to reducing inflation to the 4 percent target. He warned that any misstep at this stage could severely compromise growth.
Governor Das pointed out that while inflation has been easing, the pace of moderation is slow. “In May, the consumer price-based inflation (CPI) softened to 4.7 percent from 4.8 percent in April,” he noted.
“One severe weather event and vegetable prices may go up, and we will be at 5 percent (CPI inflation). We have to navigate our path towards the 4 percent inflation target with a clear and unambiguous focus and commitment to bring down the inflation to the target. There cannot be any wavering or distractions at this stage because any distraction will severely compromise growth,” Das stated at an event.
During the policy announcement on June 7, the RBI’s six-member Monetary Policy Committee (MPC) decided to maintain the repo rate at 6.5 percent for the eighth consecutive policy. This decision came despite dissent from two external members of the MPC, Jayanth Varma and Ashima Goyal, who favored a 25 basis points (bps) cut in the repo rate.
Drawing an analogy from the game of chess, Das explained the high stakes involved in monetary policy decisions. “There is one game where if you make a wrong move, you are finished…that is the game of chess. Therefore, as in the game of chess, we cannot afford to make any mistake or policy error or any wrong move. We have to play our game and decide our monetary policy actions primarily driven by the inflation numbers and the outlook that we have,” Das said.
The RBI has projected CPI at 4.5 percent in FY2025. Inflation is expected to be at 4.9 percent in Q1, 3.8 percent in Q2, 4.6 percent in Q3, and 4.5 percent in Q4.
On the growth front, Governor Das expressed optimism about the country’s economic outlook. “We are very sanguine about the fact that India will record 7.2 percent growth in the current year (FY2025),” he said. He highlighted that in Q4 FY2024, the country recorded a gross domestic product (GDP) growth rate of 7.8 percent, with an estimated growth rate of 7.3 percent in the first quarter of this financial year.
Das noted that the growth momentum continues to be strong, with rural consumption picking up after a prolonged lag. Additionally, external demand has also gained traction. “Government capital expenditure has sustained the growth story over the last three years in the post-COVID period, but now private sector investment is picking up in specific sectors including cement and steel,” he added.
However, Das also acknowledged the risks to growth, including weather-related events, frequent geopolitical conflicts, fragmentation in global trade and capital flows, and the potential for heightened financial sector volatility.
In conclusion, maintaining a steadfast commitment to achieving the 4 percent inflation target is crucial for sustaining India’s economic growth. Any distraction or policy error at this stage could derail the progress made so far. The government’s continued focus on capital expenditure, along with the private sector’s increased investment, bodes well for the country’s economic outlook.
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