Das spoke at an Institute of Economic Growth event in New Delhi on Saturday.
The governor stressed the importance of Monetary policyInflation expectations and taming it, while avoiding the possibility of continued tightening economic policy.
“While factors beyond our control may affect inflation in the short run, its trajectory over the medium term is determined by monetary policy,” Das said, adding that inflation may start easing gradually in the second half of this fiscal year, precluding the chances of a recessionIndia
The Bank of England announced its monetary policy last month. RBI had projected India’s inflation to start easing from the fiscal half starting October, even as accelerating prices remain a concern globally. Inflation was projected to reach 6.7% in FY23. Q1 would be 7.5%, Q2 7.4%, Q3 6.2%, and Q4 5.8%. Consumer price index May was 7.04%, which is compared to April’s 7.79%.
Around 77% of countries reported an acceleration in inflation in 2021 and this proportion is expected to rise further to 90% in 2022, according to the International Monetary Fund’s latest projections. Two-thirds of these countries have witnessed inflation exceeding 7%, compared to 2% for advanced economies and a target of 3-5% in emerging market economies.
Das reiterated the RBI’s efforts to bring inflation down to 4%. There was also a slight slowdown in output growth.
“Not all episodes of tightening have ended in recession,” he reasoned, pointing out that revisions in GDP projections by major central banks and multilateral agencies in June 2022 indicated a loss of pace in economic growth rather than a loss of level.
The governor suggested that global monetary tightening might not be sustainable for long. “With front-loaded monetary policy actions underway, central banks may not face the need for prolonged actions that lead to recessions,” he said.
The central banks have been increasing their policy rate increases faster and more frequently to restore price stability. This is despite the fact that the global economy is still recovering from the Covid-19 pandemic.
There is much debate about whether the monetary tightening necessary to control inflation will lead to global recession. Or if policymakers will be able manage a soft landing. This is a moderated inflation that brings inflation within the target range with a slight slowdown in output growth.
The governor noted that global factors can make it difficult for policy makers to decide between price stability and stabilizing economic activity, especially when economies are recovering from repeated shocks.