India’s central bank remains “extra vigilant” on inflation and needs to see the rate easing to 4% on a sustained basis, Governor Shaktikanta Das said, signaling interest rates may remain higher for longer.
(Bloomberg) — India’s central bank remains “extra vigilant” on inflation and needs to see the rate easing to 4% on a sustained basis, Governor Shaktikanta Das said, signaling interest rates may remain higher for longer.
Monetary policy must remain actively focused on curbing prices “to ensure that the ongoing disinflation process progresses smoothly,” Das said in a speech hosted by the Institute of Economic Growth in New Delhi on Friday.
The central bank kept its benchmark interest rate unchanged for the fourth straight time on Oct. 6 and signaled policy will remain relatively tight unless inflation settles durably around 4%, the midpoint of the RBI’s 2%-6% target band.
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The rupee gained on Friday after Das’s hawkish comments, rising 0.2% to 83.08 against the dollar, making it Asia’s second-best performer on the day.
The governor said there were encouraging signs from the RBI’s September round of surveys showing further progress in anchoring inflation expectations. However, the outlook on food inflation “is beset with uncertainties,” he said.
Minutes of a monetary policy committee meeting released late Friday also showed rate-setters calling for a close watch on inflation with readiness to act should price gains inch up.
“The anchoring of inflation expectations is incomplete and muddied by uncertainty,” Das’s deputy Michael Patra said, adding that prints for September and October will need to be “monitored carefully” to assess signs of moderation.
Rising crude prices and adverse weather events act as key risks to inflation, the minutes highlighted. Shashanka Bhide, an external member in the panel, said energy price volatility and firming food prices remained a concern in the short-term.
Jayanth Rama Varma, an external member of the panel who diverged from his five colleagues on the stance, said the rate panel should communicate its intention to keep the real interest rate — or the policy rate adjusted for inflation — high enough for as long as necessary to drive projected inflation closer to the midpoint.
“Keeping rates unchanged do not enhance the credibility of the MPC. I would much prefer a stance in which words are consistent with the actions,” Varma said.
(Updates with details from MPC minutes after fifth paragraph.)
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