War on inflation not over yet: RBI Governor

- Inflation is currently under control but the effect of El Nino on monsoons needs to be monitored

- 'India showed prudence even when interest rates were raised and kept constant'

New Delhi: The Reserve Bank today poured cold water on market expectations that interest rates will come down in the coming days as inflation in the country continues to decline. Addressing a meeting of the Confederation of Indian Industries (CII) in New Delhi, Reserve Bank Governor Shaktikanta Das said that the war against inflation is not over and there is no reason to be complacent.

'The war against inflation is not over yet. The situation is very variable. There is still a need to be cautious and not complacent. It is important to keep an eye on El Nino when there is a threat forecast,' said Das at the CII meeting.

Consumer Price Inflation is taken into account to determine the interest rate in India. CPI was 5.66 percent in March and 4.7 percent in April. The Reserve Bank's monetary policy requires the rate of inflation to be between 2 to 6 percent. Kharif crops are grown in India based on the four months of monsoon from June to September. It is said that if the rains are good, the agricultural production will increase and this will benefit the rural economy. However, the American and European agencies are predicting that due to El Nino, the sea temperature will be low and the coastal region will be high, there will be a shortage of rain or drought in some parts. In this situation, if the production of agricultural products decreases, it is likely that prices will remain high and inflation will increase.

In April 2022, the Reserve Bank started raising interest rates in a suddenly called meeting. After this, the interest rate was increased by 2.50 percent in a phased manner and in the last meeting it was decided to keep the repo rate constant. "Even when we suddenly called a meeting and raised the interest rate, we proved to be prudent and now we are doing the work of prudence to keep it stable, keeping an eye on the situation," said the governor. The impact of the 2.5 percent interest rate hike on the economy is awaited.

The situation of the global economy has been constantly changing for the last two and a half years due to the corona epidemic and then the Russia-Ukraine war, rising inflation due to low supply versus demand and efforts by various countries to reduce financial liquidity in the market. In India, interest rates for overnight money, which are higher than repo, have raised concerns with the Reserve Bank about liquidity in the market. To address this concern, the Reserve Bank had auctioned variable repos. According to the Reserve Bank, there was an excess cash of Rs.1 lakh crore in the market, but some banks and institutions faced a shortage of cash, so cash of Rs.50,000 crore was poured in.

Declining exports pose a threat to the economy

India's record tax revenue in April and service sector metrics show that the economy is buoyant but rising unemployment and declining exports may pose challenges to the economy. According to Bloomberg research, six out of eight economic indicators show that growth is on the rise, but there may be some concern as the economies of countries that are India's export markets are slowing down. India's exports fell by 12.7 percent in April. There is a possibility that the economy of America and Europe, the main export markets of India, will grow towards recession or at a very low rate, so exports may decrease in the coming days.