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NEW DELHI (Reuters) – India’s retail inflation is likely to breach the mandated inflation target band of 2-6% for three straight quarters but is showing indications of peaking, Reserve Bank of India deputy governor Michael Patra said on Friday.
“The RBI Act mandates that in case the inflation target is not met for three consecutive quarters, which is the likely scenario, the RBI shall set out a report to the central government and in that report it will state the reasons for failure to achieve the inflation target,” Patra said.
Retail inflation eased marginally in May, after touching an eight-year high of 7.79% in April, but remained above the central bank’s tolerance band of 2-6% for a fifth month in a row.
Patra, who was speaking at an event organised by the PHD Chamber of Commerce and Industry, said core measures of inflation were showing signs of second-round effects which warranted monetary action.
The RBI, however, is hopeful that any further monetary policy steps will be more moderate compared to the global tightenings, he added.
Patra said internal research has showed that growth is “unambiguously impaired” when inflation exceeds 6%, making it imperative to act on price pressures.
High inflation has hurt the rupee and pushed it to record lows while bond yields have been rising on expectations of aggressive monetary policy tightening and a record government borrowing programme.
The deputy governor said the RBI will defend the rupee from extreme volatility and not allow any “jerky or disorderly movements”.
While describing the current level of bond yields “uncomfortably high”, Patra said the RBI would take necessary measures to ensure yields move in an orderly fashion and the government’s borrowing requirement is smoothly completed.
