The RBI cannot afford to drop its guard on price stability while in search of growth

The MPC’s central remit on inflation also remains a concern. Core inflation, the panel observed, had hardened across the board and increased by 50 basis points to touch 6% in February. The RBI is cognisant of the fact that there are both upside and downside pressures that may impact the trajectory of retail inflation. Governor Shaktikanta Das has flagged the critical significance that this year’s monsoon rains will have on food prices, which have been a recent source of upward pressure on price stability. And both Mr. Das and the broader committee have stressed the vital need for the Centre and States to initiate some coordinated action to ease the tax burden on petroleum products, given the ripple ‘second-round’ effects that the high costs of transport fuels have on overall inflation. High international commodity prices and logistics costs are also threatening to push up input costs across the manufacturing and services sectors, posing a real challenge to policymakers, given that it is far harder to influence these variables. With the RBI’s own March survey on inflation expectations showing that urban households expect prices to accelerate over a one-year horizon, monetary authorities can ill afford to drop their guard on price stability. For, at stake is their hard-earned credibility.

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