New Delhi
India needs to recalibrate its response to the price situation following disruptions in global supply chains on account of the Russia-Ukraine war, as losing the battle against inflation neither serves the government nor the central bank, former RBI governor Raghuram Rajan has said.
Known for his frank views, Rajan further said it is very important for any central bank to respect its mandate given to it by the government.
India’s central bank has a mandate, which has served it well, in the sense of allowing it to react to some of the concerns during the pandemic, without raising rates, having moderate inflation,” he said in an interview to CNBC-TV18.
The RBI has a mandate to keep an inflation target of 4 per cent with a +/-2 per cent tolerance band.
“And like every other central bank, as we come out of it and face new challenges, we have to recalibrate and ask whether the old playbook sort of still holds,” Rajan said, adding that he thinks that’s extremely important.
The eminent economist said, “Because otherwise if you lose the battle against inflation, it serves neither the government nor the RBI.”
The retail inflation rate breached the 6 per cent upper tolerance limit of the RBI for the first time in seven months in January, while the wholesale-price index stayed in double-digits for the 10th month in a row.
To a question on whether current inflation is a temporary blip, Rajan said this(inflation) is coming on top of an already high level of inflation in many parts of the world.
“So when you add the additional effects of war, it gives greater weight to inflation,” he said.
According to Rajan, inflation was already becoming more persistent certainly in the United States but also in Europe and with the additional boost to inflation from the war and from the shortages of commodities etc.
The Reserve Bank of India (RBI) on February 10, had lowered the inflation outlook to 4.5 per cent for the next fiscal, from 5.3 per cent in the current year, on the assumption of a normal monsoon during the year.
