India Warns High Inflation Will Persist Through This Year

 

India’s inflation is likely to remain above a target band through this year, according to a senior central bank official.

Inflation at the retail level has remained above the central bank’s tolerance band of 2-6% for five months in a row, even though it eased marginally in May, after touching an eight-year high of 7.79% in April.

Reserve Bank of India (RBI) deputy governor Michael Patra said on Friday that core measures of inflation were showing signs of second-round effects which warranted monetary action.

“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.

The RBI, however, hopes 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 Indian 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”.

 

• Reuters, with additional editing by George Russell

 

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