New Delhi: The Reserve Bank of India sees the current spate of quickening inflation driven by supply-side constraints that are likely to go away as the economy reopens, according to one of its ex-deputy governors.
“That is why the RBI is not very concerned about immediate increase in inflation rates,” R. Gandhi, who was a deputy governor at the central bank between 2014 and 2017, said in an interview to Bloomberg TV’s Rishaad Salamat and Haslinda Amin.
Although retail inflation has been hovering well above the central bank’s upper tolerance limit of 6% for the past two months, Governor Shaktikanta Das recently described the trend as a “transitory hump.” His comments underlined the monetary authority’s intent to keep borrowing costs lower for longer to support the economy’s recovery from an unprecedented contraction last fiscal year.
Still, bond traders have read higher inflation, a near-record government borrowing program and elevated oil prices as factors pointing to a sooner-than-expected tightening in monetary policy. The yield on the benchmark 10-year government bonds has jumped by 16 basis points so far this month to 6.21%, the most since February.
“I see it as standard tension between market participants and the monetary policy authority,” Gandhi said. “This is nothing to be concerned about.”
He said the RBI and the Monetary Policy Committee expect the government’s borrowing program to go through smoothly without disturbing the yield curve.
Here are some more comments by Gandhi:
– RBI following up beliefs with words and actions, including through developments at bond auctions which send a strong message
– Economy unlikely to overheat because of unused capacity and low credit growth
– Recent elevated oil prices are reason for concern, but impact on inflation should be manageable –Bloomberg
Also read: RBI must accept higher inflation to help growth, former governor Rangarajan says