RBI has shifted its focus on surging inflation; sweeps ‘temporary’ under the rugThe Reserve Bank of India has turned its focus on bringing runaway inflation under control after repeatedly calling surging price pressures temporary previously.Experts and market watchers had previously said the RBI was behind the curve on inflation, but policymakers had said that was not the case.While the Russia-Ukraine war has pushed global inflation, the RBI had previously focussed on the economic recovery from the pandemic and said rising price pressures were transitory, a common mistake made by most major central banks worldwide.The US Federal Reserve, among the majors, had said rising inflation was transitory around the same time last year, but just before the turn of the year, it had shifted its focus on bringing price stability.Inflation has surged above the RBI’s target, and food prices are spiralling, driven by supply shocks from the war on the edge of Europe; the resultant action, a 40 basis point off-cycle hike in the key repo rate last month and a 50 basis points increase at its meeting last week, suggests the shift in the central bank’s focus, which governor Shaktikanta Das confirmed in his press conference.That is a complete U-turn from policymakers who had suggested that calling the RBI behind the curve on inflation was a mistake and not correct when experts and market watchers had voiced concerns on India’s perennial bane – rising price pressures driven by supply roadblocks.In May, former RBI Governor D Subbarao said the criticism that the Reserve Bank of India was behind the curve in hiking interest rates to tame rising inflation was unfair and had asserted that it was difficult for any central bank to anticipate the future more accurately.She had said, “it is never wise to overreact to a first-round shock, even if it follows a series of earlier shocks, especially when the country is in a shaky recovery from a pandemic.” Monetary Policy Committee (MPC) member Ashima Goyal in May had said, The RBI was not “behind the curve” in hiking interest rates to tackle rising inflation.Ms Goyal had added that long-term price pressures have materialised in India only after the Ukraine war started on February 24.While the central bank faces a dilemma of supporting the nascent recovery from the COVID-19 crisis and at the same time tame surging prices, the RBI now expects inflation to remain above its upper band of 2-6 per cent target this calendar year.Retail inflation has now remained above the upper tolerance level of the RBI each month this year.That suggests the central bank has lost control of inflation, which is its primary mandate, as its main target is to keep retail inflation at 4 per cent, with a tolerance level of 2 per cent above or below that rate.On Friday, an official of the central bank said the RBI had prioritised inflation over growth, manifested by the recent hikes in repo rate.
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