Will Keep 'Arjuna’s Eye' On Evolving Inflation Dynamics: RBI Governor Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said the central bank will keep "Arjuna's eye" on inflation, cautioning that the battle against inflation is yet not over.

"Globally, inflation remains high and broad-based in the aftermath of the Russia-Ukraine war. Retail inflation projection retained at 6.7 per cent for FY23, and we will keep Arjuna's eye on evolving inflation dynamics," he said.

"RBI sees inflation 6.7 per cent during FY'23 with Q3 at 6.6 per cent and Q4 at 5.9 per cent," Das said, adding RBI's action remains nimble in the best interest of the economy. In the September policy, the central bank had forecast inflation at 6.4% for Q3 and 5.8% for Q4. 

Over the next 12 months, inflation is expected to remain higher than 4%, he added.

The RBI said retail inflation for first and second quarter of next fiscal is projected at 5 per cent and 5.4 per cent respectively, on the assumption of a normal monsoon.

Retail inflation has remained above the upper band of 6 per cent for 10 months through October.

Under the “inflation-targeting” regime, RBI has to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage. Thus, for any given month, RBI’s comfort zone for inflation lies between 2 per cent and 6 per cent. 

The RBI Governor had last month also said the central bank will concentrate on inflation in the same way as Arjuna focussed on hitting the eye of a fish. "No one can match the prowess of Arjuna, but our (RBI's) constant effort is to keep an Arjuna's eye on inflation," he said at the annual FIBAC conference of bankers.

RBI left its inflation forecast unchanged at 6.7%, as the core inflation remains sticky at an elevated level, even as food prices are expected to moderate. 

"Inflation is expected to moderate but the battle against inflation is not over. Pressure points from high and sticky core inflation and exposure of food inflation to international factors and weather-related events do remains," Das said. The main risk is that core inflation remains sticky and elevated and uncertainty continues due to geopolitical crisis, he added.

The Reserve Bank of India (RBI) on Wednesday hiked the repo rate by 35 basis points (bps) to 6.25 per cent. With this, the repo rate has been raised by 225 bps since April 2022.

In September, the RBI had hiked the key policy rate (repo) by 50 basis points with an aim to check inflation. This was after the central bank had raised the repo rate by 50 bps each in June and August, and 40 bps in May.

Das also said that the Indian economy remains resilient and that India is seen as a bright spot in a gloomy world.

"Despite marginal downward revision in GDP growth to 6.8 per cent, India to remain fastest-growing major economy. In an interconnected world, we cannot remain entirely decoupled. The biggest risk remains headwinds from global geopolitical tensions," he said.

Going forward, food inflation is likely to moderate with the usual winter softening and the likelihood of a bountiful rabi harvest, but pressure points remain in the form of prices of cereals, milk and spices in the near-term. Risks from adverse weather events add to uncertainty in the outlook.