New Delhi: RBI Monetary Policy Committee (MPC) member Ashima Goyal on Wednesday said that the efforts of the Reserve Bank of India to contain price rise by repeatedly increasing interest rates will help in mitigating inflation, which is likely to fall below 6 percent next year.
Goyal added that although the real rate is still low enough not to hinder the recovery in growth, policy rate increases have largely erased pandemic-time reduction. "Higher real rates will decrease demand in the economy with a lag of two to three quarters." With the global slump, international commodity prices are easing, and supply chain bottlenecks are disappearing.
On September 30, the RBI increased the short-term lending rate for the third time in a row by 50 basis points, bringing the repo rate to 5.9%, in an effort to curb increasing inflation. The key interest rate has gone up by a total of 190 basis points since May. In order to lower supply-side inflation, the Indian government is also taking action. According to current predictions, inflation would drop below 6% in 2019, Goyal stated.
The mandate of the central bank is to maintain inflation at 4% with a 2% tolerance on either side. Goyal contends that a modestly positive real interest rate can work to lower inflation with supporting supply-side activity and little growth cost.
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