RBI policy action has to be nuanced; cannot be unidirectional: Shaktikanta Das

The RBI retained the real GDP growth at 9.5 per cent in the current financial year. It has projected real GDP growth for Q1, Q2, Q3 and Q4 of FY’22 at 21.4 per cent, 7.3 per cent, 6.3 per cent and 6.1 per cent, respectively.

The consumer price-based inflation (CPI) is projected at 5.7 per cent during 2021-22, with 5.9 per cent in Q2; 5.3 per cent in Q3; and 5.8 per cent in Q4 of 2021-22. CPI inflation for Q1 of FY 2022-23 is projected at 5.1 per cent.

“These are extraordinary times we are dealing with, and there are several currents and cross-currents. There are many conflicting objectives which the Reserve Bank has to manage.

“So, the policy action of RBI has to be nuanced, it cannot be unidirectional or just black and white. It has to be a nuanced policy response, and that is precisely what we have attempted to do,” Das said while responding to query on whether higher CPI projection and continuation of accommodative stance give conflicting signals.

The flexible inflation target (FIT) framework requires the RBI to keep inflation at 4 per cent, with the upper tolerance level of 6 per cent and the lower tolerance level of 2 per cent.

CPI inflation eased to 6.26 per cent in June 2021 from 6.3 per cent in May 2021.

Explaining the inflation projection, RBI Deputy Governor Michael Patra said between 2016 to 2020, inflation was kept at 4 per cent by a combination of various things.

In the year of 2021, due to the pandemic, margins, taxes were raised, and there were supply disruptions, which led to an inflation of 6.2 per cent on an average, he said.

Average inflation for FY2022 is projected at 5.7 per cent, which is a real improvement over 2021, Patra said.

“The path of inflation is being calibrated downwards, on the way to reach 4 per cent. So, from 6.2 per cent in a pandemic year to 5.7 per cent in a year following the pandemic, and thereafter to 4 per cent is the right way to go,” Patra said.

The central bank is spreading the disinflation over a period of two-three years in order to minimise the output losses, he said.

“The approach to inflation issue is not one of a cold turkey approach, where you slam the economy till it goes limp without inflation. That’s not the way it is,” he said.

“The flexible targeting framework allows you to secure disinflation over a period of time rather than at a point of time, and that has been our approach. Since inflation has gone to a pandemic-high and not to demand-supply high, it is important to bring that down, not immediately, but over a period of time,” Patra added.