Stable inflation is good for the economy, says Das

Price stability is in the interest of the people and the economy and serves as the basis for sustainable growth, Reserve Bank of India (RBI) Governor Shaktikanta Das said in his speech at the High-Level Policy Conference of Southern Central Banks. is held here today.

“Sustained growth has given us the opportunity to focus on inflation to ensure it stays below the 4 percent target. Stable inflation or price stability is in the interests of the people and the economy. It acts as the basis for sustainable growth, increases the purchasing power of the people and provides a stable investment environment,” Das said.

His comments come as India’s retail inflation, as measured by the consumer price index (CPI), rose to a 14-month high of 6.21 percent in October. Retail inflation has exceeded the RBI’s permissible range of 2-6 percent. Despite higher inflation, central government leaders have urged the RBI to cut interest rates. The RBI at its latest Monetary Policy Committee (MPC) meeting kept the repo rate unchanged at 6.5% but changed its stance from ‘unaccommodation’ to ‘neutral’, easing the tightening cycle.

Global South

Das said countries in the global south must increase per capita income and productivity, for which growth is a fundamental necessity. However, growth should not come at the expense of price stability.

“To achieve higher growth, countries in the Global South need to increase investment in physical and social infrastructure, embrace technology and innovation, and undertake institutional reforms. All this requires favorable government policies, including monetary policy, that would support economic growth while maintaining a balance with inflation,” he said.

In fact, price stability is as important as growth because it allows economic agents to plan ahead, reduce the inflation risk premium, and stimulate savings and investment. “Price stability is also important because high inflation disproportionately burdens the poor,” he said. The role of fiscal and monetary coordination is also important in maintaining a balance between growth and inflation.

Challenging times for the global economy

The governor also said clouds of uncertainty still loomed over the horizon and policymaking under such conditions would be challenging.

“When the history of our time is written, the experience and learnings of the last few years will, in all likelihood, mark a turning point in the evolution of central banking,” he said. For countries in the global South, maintaining overall stability, including sustainable growth, price stability and financial stability, remains a challenge.

Accordingly, central banks need to work towards creating more robust, realistic and flexible policy frameworks that synergistically use monetary, prudential, fiscal and structural policies to achieve desired outcomes, Das said.