Exclusive: Indian government 'in no hurry' on medium-term inflation target - sources

Exclusive: Indian government ‘in no hurry’ on medium-term inflation target – sources

Debashis Dhara, a vegetable vendor, talks on his mobile phone at a retail market in Kolkata, India March 22, 2022. REUTERS/Rupak of Chowdhuri

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NEW DELHI, Sept 21 (Reuters) – India’s government is in no rush to bring inflation – which is now hovering around 7% and eight-year highs – towards the bank’s medium-term target of 4% central, lest aggressive rate hikes hurt economic growth, said two sources with direct knowledge of the matter.

The price spike is set to trigger a legally mandated central bank report to the government on anti-inflation policy responses for the first time, but the sources said the government would be comfortable if the central bank took two years or even longer to bring inflation down to 4%.

They added that after rate hikes of 140 basis points in the past four months by the Reserve Bank of India, to 5.4%, inflation was now under control and should return to the top of its range. target at 6%, which could be reached within three to six months.

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“We are in no rush to get inflation to 4%. Growth and inflation need to be balanced,” said one of the sources, who spoke on condition of anonymity because talks about it are not open. public.

“New Delhi would be comfortable with inflation below 6% over the next three to six months,” the source added. “Our inflation is under control especially after a series of government and RBI measures.”

India’s finance ministry did not immediately respond to an email and instant message seeking comment.

Many other major central banks also concerned about inflation raised rates aggressively, with the US Fed widely expected to raise rates by at least 75 basis points on Wednesday.

The RBI’s Inflation Targeting Monetary Policy Committee (MPC), established in 2016, has a mandate to keep inflation within a band extending 2 percentage points either side of its target of 4 %.

If inflation remains below or above the range for three consecutive quarters, the RBI must inform the government of the reasons why it has not met the target, the corrective measures it will take and an estimated time frame for reach the goal.

Inflation data for September, due on October 12, will almost certainly keep consumer price growth in India above 6% for a third consecutive quarter, triggering the reporting requirement.

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For four years, the RBI’s monetary policy has maintained a dovish stance with a growth bias, but reversed course in May, just before the release of April’s “shock” retail inflation of 7.79 %, which was the highest in eight years, driven by a spike in food prices.

Inflation has remained high since, putting pressure on the central bank to raise interest rates again at the next meeting of the Monetary Policy Committee on September 30. read more

The government has taken a number of other measures to combat inflation, imposing restrictions on rice exports last week after previously restricting wheat and sugar exports, to cool local prices, while reducing gasoline and diesel taxes in May.

However, with economic growth faltering, authorities are concerned about measures that would undermine domestic demand.

India’s April-June economic growth of 13.5% was below the RBI forecast of 16.2% for the period, threatening the overall growth projection of 7.5% for the full year.

Last week, global ratings agency Fitch cut India’s growth forecast for 2022/23 to 7% from 7.8% as high inflation will lead to tighter monetary conditions.

Fitch said he expects India’s key monetary policy rates to peak in the near future and stay at 6% until next year.

The second source familiar with the matter said that India’s economic growth momentum was going in the right direction and the measures already taken by the central bank and the government should be able to contain inflation.

India’s central bank said its rate decisions would be calibrated, measured and nimble to economic dynamics, as markets forecast it could raise rates by 35-50 basis points later this month. .

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Reporting by Aftab Ahmed; Editing by Edmund Klamann

Our standards: The Thomson Reuters Trust Principles.

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