We Should Not Be Influenced by Temporary Reductions in Inflation: Inflation Below the 4% Target, But Loans Will Still Be Expensive – Das
Retail inflation in the country has stayed below 4% for two consecutive months. The Reserve Bank of India’s goal is to bring the inflation rate down to this level. However, this doesn’t mean that the RBI will immediately reduce the repo rate, or that banks will lower interest rates, making loans cheaper.
Speaking at the Bretton Woods Committee’s Future of Finance Forum held in Singapore, RBI Governor Das said, “In April 2022, inflation was at a high level of 7.8%. It has now decreased, but we still have a gap to close. We cannot take the risk of looking the other way.” He hinted at the caution against hastily bringing the repo rate below 6%.
Retail Inflation Rate and Economic Growth Analysis
In August, the retail inflation rate was 3.65%, up from 3.54% in July. Das commented that inflation remains within the 2-6% target range, but the goal is to stabilize it at 4%.
During the MPC meeting, emphasis was placed on considering the current situation and avoiding being influenced by temporary reductions in inflation. There is a possibility of a 7.2% growth by the end of the year.
During the April-June quarter, India recorded an annual growth rate of 6.7%. The government reduced spending due to elections. While service exports have increased, merchandise export growth has decreased, attributed to a drop in external demand.
Progress was also highlighted in areas such as fiscal deficit reduction, public debt management, and improvements in corporate performance contributing to balanced growth.
Interest Rates Expected to Remain High Until December
Most economists believe that the Reserve Bank will not reduce interest rates until October-December. It is likely to wait for reductions in interest rates in the U.S. before making any changes.
Das further added that while India’s potential growth rate is over 7.5%, a more cautious perspective suggests it is around 7%. There are indications that consumer demand is decreasing in urban areas, which could impact the economy.
