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MUMBAI : The Reserve Bank of India (RBI) does not foresee inflation to breach its upper tolerance limit of 6% and expects it to moderate going forward, governor Shaktikanta Das said on Monday

Das’s statement comes at a time of highly volatile crude oil prices in the wake of Russia’s invasion of neighbouring Ukraine. India relies on imports to meet over 80% of its crude oil requirements and any price rise in the global market hurts the economy, undoing its fiscal math. Das said that while remaining accommodative in its stance, the rate-setting committee of the central bank is conscious of its primary responsibility to maintain price stability and target inflation.

 “A lot of developments are taking place. Crude oil prices touched $130 (per barrel) and then came down to $99 and today it is at $112. So, we really do not know how it is going to pan out," Das said at the CII National Council Meeting.

However, Das said that the central bank does not see inflation going up beyond 6%. In fact, its expectation was that it will moderate to 4.5%, he said.

Last year, the government retained RBI’s flexible inflation target in the 2-6% band for the five years through 31 March 2026. To be sure, inflation measured by the consumer price index (CPI) came in at 6.07% in February, up from 6.01% in January. While forecasting inflation, the value of crude and commodity prices factored in are assumed to remain range bound for a year.

 “We do not know today whether crude oil will remain $100 (per barrel) plus till March 2023. The situation today is unimaginably uncertain," he said.

Das said that over the last two years, RBI has remained supportive of growth and has resisted all temptations and expectations of reversing the monetary policy and moving away from accommodative stance.

 “If you recall, in 2020 for couple of months in September and October, in May and June of 2021 when inflation crossed 6%. There were lot of expectations and analytical pressure on us through newspaper and magazine articles that RBI should do this and that. We resisted the temptation because we could foresee that inflation will moderate and it did," he said.

While global central banks raise interest rates and tighten monetary policies, experts are concerned that India risks falling behind the curve. Das said on Monday that initiating a premature demand compression through monetary policy action, would be counterproductive. The central bank has time and again pointed out how India’s growth needs to be sustained on a durable basis and needs policy support.

 “Most of the liquidity we injected had a sunset date and a lot of it has in fact come back. We announced total liquidity support of about 17 trillion over the last two years or so. Of that, what the banks and small finance banks (SFBs) availed of was at about 12 trillion and as I speak today, 5 trillion has already come back and the rest will mature at the end of the third year and some of it will also come back in the intervening period," said Das.

He assured that going forward, RBI will ensure there is abundant liquidity in the market for the credit system to function normally. According to the governor, by injecting liquidity one enters into a Chakravyuh, a military formation referred to in Indian epic Mahabharata. He said that while a lot of people know how to enter it, few know how to come out.

 “At RBI, the day we announced that we enter that Chakravyuh, we planned an exit route also and we would come out smoothly," Das said, referring to RBI’s gradual unwinding of covid-19 relief measures. 

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