By Siddhi Nayak
MUMBAI (Reuters) – Core inflation in India is an area of concern and the Reserve Bank of India needs to be very vigilant of it, the bank’s chief Shaktikanta Das said on Friday.
India’s annual retail inflation rose 5.72% in December from 5.88% in the previous month, government data showed on Thursday. Core inflation, which excludes volatile food and fuel components, was estimated at 6.1%, according to two economists, versus 6% and 6.26% in November.
“Although the momentum of core inflation has moderated, it remains sticky at 6%,” Das said in a discussion at the Business Today Banking and Economic Summit.
“That is not a comfortable number to deal with. So therefore we have to be very vigilant and we have to really keep focus on the core part of inflation.”
Das reiterated that the Reserve Bank of India had not lost sight of inflation but said there was no need to revise the inflation target at the current juncture. The current inflation targeting framework gives the bank’s Monetary Policy Committee (MPC) a lot of flexibility in extraordinary situations like the pandemic, he said.
The MPC has a target to bring down inflation to 4% over the medium term while keeping it within a band of 2-6%.
The MPC has raised rates by a total 225 basis points since May last year to tame high prices and is widely expected to deliver one final hike of 25 basis points at its February meeting before adopting a long pause.
Das, too, alluded to the prospect of rates staying higher for a prolonged period without specifically mentioning India.
“If the current geopolitical situation remains the way it is, it could be a situation of ‘high for long’ interest rates (the) world over,” he said.
Separately, with regards to concerns over the near-decade-high current account deficit number in the September quarter, Das said there was great improvement seen in October and November.
He said the country’s services exports have picked up pace while the merchandise trade deficit was showing signs of moderating and financing of the current account deficit would be “fairly comfortable”.
(Writing by Swati Bhat; Editing by Conor Humphries)
