The Hindu Explains | What is inflation, and what is the RBI’s role in tackling it?
The HinduThe story so far: The Monetary Policy Committee of the Reserve Bank of India on Friday announced its decision to hold the benchmark repo rate unchanged at 4%. Vowing to stick with its ‘accommodative’ policy stance in the next fiscal year to help support economic recovery amid the COVID-19 pandemic, the MPC opined that inflation was likely to remain elevated, “barring transient relief in the winter months from prices of perishables”. Consumer Price Index inflation, the RBI said, would average 6.8% for Q3 and 5.8% in Q4 — both levels above or close to the 6% upper bound of the target range for ensuring price stability — before easing to a 5.2% to 4.6% range in the first half of the next financial year, starting April 2021. To the extent that ensuring price stability is its primary goal, the RBI through its MPC must constantly assess not just current levels of inflation and prices of various goods and services in the economy, but also take into consideration inflation expectations both of consumers and financial markets so as to use an array of monetary tools, including interest rates, to contain inflation within its target range. In Friday’s statement, the MPC noted: “Cost-push pressures continue to impinge on core inflation, which has remained sticky and could firm up as economic activity normalises and demand picks up.”