RBI Governor on inflation
There is a legitimate concern about the recent developments on the inflation front. I will mention five relevant factors.
1. First, most of the latest hike in inflation is on account of oil prices, as has been explained in detail on Saturday by the Finance Secretary and the Chief Economic Advisor.
2. Second, the hike on account of oil has come on top of some underlying inflationary pressures.
3. Third, at the current level of global prices, the pass-through of oil prices is not happening on a continuous basis.
4. Fourth, oil price increase is now a global problem, making inflation a problem for all countries, both developed and developing. Hence, our solutions to the problem will also be similar, but tailored to suit our conditions.
5. Fifth, and finally, this high level of energy prices may not necessarily be temporary. So, the whole economy and indeed our society is better off adjusting to the possible new reality of high and volatile energy prices.
We are approaching this issue in a calm and calculated fashion, and on an ongoing basis, in a timely manner.
The problem is such that we should look at it in terms of both the past and the future also.
The future.
Of the three shocks from global economy, we are safe in regard to the financial sector and the outlook is optimistic on the food front. Therefore, as of now, fuel prices are the main, though a difficult, problem. The macro policy can, therefore, focus on this problem of fuel prices in the background of some strength in many other aspects.
We are confident that with a well-managed smooth adjustment of this episode, the inflation would be brought in alignment with our aim as expressed in the Policy from time to time.
We must recognize that the oil shock has been externally imposed on India . We have to manage the shock and smoothly adjust to new realities, taking advantage of our strengths in the real sector also.
Our financial and external sectors are strong, efficient and resilient to manage the adjustment process.
In the process of difficult adjustment, the RBI will play its part in moderating and managing aggregate demand so that pressures on prices are not intensified.
I call upon all market participants, in particular the financial market participants, to appreciate the problem with the analysis at their command, participate with us in managing demand and maintaining orderly conditions in financial markets, while drawing upon the strengths of their respective balance sheets.
The RBI will continue to take determined and calibrated measures, as and when warranted, with a focus on managing expectations and on enabling adjustments in the economy in response to the oil shock.