Long-term inflation outlook at odds with near-term risks: RBI Bulletin

livemint.com:

MUMBAI : The objective of aligning India’s inflation with the 4% target on a sustainable basis is far from assured, according to an article in the Reserve Bank of India (RBI)’s December bulletin. It also cautioned against, what it called a case of hypermetropia or far-sightedness, among some of its stakeholders. In the article titled State of the Economy, it said that softer retail inflation figures for September and October 2023, along with a prolonged pause in the monetary policy stance, resulted in an irrational long-sightedness.

The article said that while the stakeholders are focusing on distant inflation forecasts moving towards the 4% target, they are overlooking significant near-term risks of potential spikes in inflation due to food price volatility. Under such circumstances, a clamour rises for rate cuts or at least for the central bank to commit to a path of moderation in the level of policy rate, it said. “Such views imperil the conduct of monetary policy in the pursuit of its goal of durably aligning inflation with the target.

These views also undermine the foundations of growth," it said. Written by RBI officials, the article had the customary disclaimer stating that the views expressed are those of authors and not necessarily reflective of the central bank’s views. Following RBI’s decision to maintain its inflation target for FY24 and revise growth forecast, governor Shaktikanta Das said on December 8 that the 4% retail inflation target had not been achieved, and cautioned that headline inflation remained volatile due to various supply-side shocks.