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Inflation moderating from May’s shock spike: RBI Dy Guv

India’s inflation level is moderating from the shock spike of May, said RBI’s Deputy Governor Michael Debabrata Patra on Thursday.

Speaking at CII’s Financial Markets Summit, he said: “Inflation is moderating from the shock spike of May, but core inflation is sticky at still elevated levels.”

“In the financial markets, divergent behaviour is evident — the exuberance of equities versus the cynicism of bonds. Monetary policy has been on a prolonged pause in terms of the policy rate after reducing it to its lowest level ever.”

According to Patra, the monetary policy stance of ‘as long as necessary’ accommodation is reflected in ample liquidity in the system, with net surpluses of close to Rs 9 lakh crore being absorbed by the RBI on a daily basis.

“Markets are, however, constantly reassessing this stance with incoming data and seeking definitive reassurance on the future course of policy.”

Besides, he pointed out MPC’s assessment that inflationary pressures are largely driven by supply shocks.

“Although shocks of this type are typically transitory, the repetitive incidence of shocks is giving inflation a persistent character. Contributions to inflation are emanating from a narrow group of goods — items constituting around 20 per cent of the CPI are responsible for more than 50 per cent of inflation.”

Furthermore, he cited that MPC remains committed to its primary mandate of price stability, numerically defined as 4 per cent with a tolerance band of plus or minus 2 per cent around it.

“Taking into account the outlook on growth and inflation and keeping in mind the inherent output costs of disinflation, it is pragmatic to envisage a glidepath along which the MPC can steer the path of inflation into the future.”

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