Inflation in India may finally be slowing, opening the door for the central bank to resume monetary easing and helping it push back against calls for a shake up of its policy framework.
Consumer price index figures due Tuesday are expected to show a 5% increase in December from a year earlier, returning to the Reserve Bank of India’s target range of 2% to 6%. Prices rose quicker than 6% in 11 of the 12 prior readings, hampering the RBI’s ability to counter the pandemic-driven downturn.
The price moderation couldn’t come at a better time for central bank Governor Shaktikanta Das, with the inflation targeting mechanism that’s been in place since 2016 coming up for review this year. The RBI will give its official recommendations in an annual report due in the next few weeks.
Critics, including some in Prime Minister Narendra Modi’s government, are seeking a widening of the inflation targeting band so the bank can focus on doing more to stimulate growth. Others are calling for policy to target core inflation, which strips out volatile food and energy prices, as well as the current benchmark headline inflation.
The RBI has been gently pushing back on any changes, through working papers and statements by senior officials. It has argued the elevated headline inflation is a supply-side impact of the pandemic, not a policy flaw.
“I don’t think this is the result of any significant policy errors,” said Hugo Erken, head of international economics at Rabobank in Utrecht. “But the RBI needs ways to restore faith of agents in the economy that 2%-6% is an inflation rate that will eventually be achieved.”
No comments:
Post a Comment