Need to be patient in gliding inflation to target... accept 4-5% rate for now: RBI's monetary policy committee member Jayanth R Varma
Jayanth R Varma said the panel needs to be patient when it comes to bringing inflation down to its target of 4%, as efforts aimed at a quicker reduction could hit GDP growth. In an interview with Bhaskar Dutta, he said the MPC should be willing to accept inflation in the 4-5% range for several quarters to prevent growth from being derailed.
Edited excerpts:
You have said that the real interest rate based on projected inflation is high enough to bring inflation within the 4% target within a reasonable period. Can you give a timeline?
I have argued for quite some time now that while there is urgency for bringing inflation below the upper tolerance band, we can be more patient when it comes to gliding inflation to the target.
A more rapid pace of reduction could impose an intolerable growth sacrifice. We should be willing to accept inflation between 4% and 5% for several quarters as the price of avoiding a growth shock.
You have said that the market needs guidance on how long the repo rate would be maintained at a high level. Is time-based guidance possible? If yes, what is the timeline that you are looking at?
I am suggesting not time-based guidance but data-dependent guidance.
If a real repo rate of 1% is required to glide inflation to target, then the nominal repo rate falls with falling inflation projections. For example, if projected inflation falls durably below 4.5%, then the real repo rate would be 2%, which would probably be excessive, and there would be a need to cut the repo rate to maintain the real rate at a reasonable level.
You spoke of geopolitical realignment of the largest OPEC+ producers and the impact on crude oil prices. How much uncertainty does the West Asia conflict add to the domestic inflation
