Monetary policy needs to look at the future: RBI Governer Shaktikanta Das 

Reserve Bank of IndiaGovernorShaktikanta Dassaid on Tuesday that the monetary policy must be forward-looking, adding that using a policy approach that only looks in the rear-view mirror can result in crises.

Das used the comparison of driving a car on a road with potential ditches and speed bumps to explain how monetary policy is conducted.

“Driver needs to see ahead and regulate the speed of the car. If driver reacts suddenly to a speed bump, he can cause accident,” Moneycontrol quoted Das, who was delivering theDelhi School of Economics Diamond Jubilee Distinguished Lecture.

Over the past few years, the RBI has fought a protracted war against high inflation. In order to combat inflation, the RBI increased the repo rate, the rate at which the central bank provides short-term cash to banks, by 250 basis points since May 2022.

The MPC (Monetary Policy Committee) is required to maintain retail inflation at the target rate of four per cent within a tolerance range of two to six per cent.

Although it has been slowing this year, inflation has not yet displayed a consistent pattern of lowering.In July, a sharp rise in vegetable prices caused India’s headline retail inflation rate to soar over the top limit of the RBI’s 2 to 6 per cent tolerance range and reach a 15-month high of 7.44 per cent.

In the near future, India’s inflation is likely to stay high, but government actions will stop it from increasing further, according to S&P Global Ratings Economist (Asia Pacific) Vishrut Rana on Tuesday.

Das stated that the MPC must monitor price stability and take appropriate action, adding that the supply-side policies implemented by the fiscal authorities are of utmost significance.

“It is necessary to watch price stability and act appropriately. We are now firmly focused on 4 per cent target,” Moneycontrol quoted Das as saying.

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