RBI is balancing inflation and growth in the onset of several global economic challenges said RBI Governor Shri Shaktikanta Das in a high-level conference meeting on 21^st November in Mumbai. Das outlines that global economic crisis like the COVID-19 pandemic, supply chain disruptions, geopolitical conflicts (Russia-Ukraine/ Israel-Palestine), global surge in inflation, geo-economic fragmentation in trade, technology and capital flows, debt sustainability challenges, and impacts of climate change necessitates a measured approach with monetary policy in balancing inflation and growth.
The event was set on the onset of the 90^th anniversary of the RBI and aims to foster dialogue on monetary policy challenges specific to developing economies, particularly in the global south.
The RBI employs a Flexible Inflation Targeting (FIT) framework that prioritizes price stability and fosters sustainable growth. During the pandemic, the inflation target was a cumulative average instead of a month-on-month basis. Breaching the inflation target for three consecutive quarters will be considered a failure. There is a tolerance limit to the inflation target due to the supply chain shocks, forecast errors and measurement issues.

Das also applauded the RBI’s assessment for rate cuts a year before the pandemic as economic growth was slowing down while inflation remained aligned with the target. The focus was on reviving economic growth despite inflation surges. Subsequent crisis of the Russia- Ukraine war, involved adjusting monetary policy to manage the supply chain disruption to tackle inflation while supporting economic recovery.

Das also highlighted that effective coordination between fiscal and monetary policies is necessary for managing inflation and supporting growth. He emphasized the role of Central Bank Communication in managing expectations and enhancing policy effectiveness. Clear communication is important for managing transparency and credibility, especially as central banks navigate complex environments.

The Reserve Bank of India has also taken policy measures to ensure liquidity infusion without compromising stability. Das reflected on India’s approach during crisis scenarios gradual unwinding of these measures post-crisis.