The Reserve Bank of India (RBI) has maintained its resolute stance on inflation control, holding the key lending rate at 6.5 per cent for the fourth consecutive policy meeting. This decision sends a clear message. The RBI is committed to its mission of reining in inflation, striving to align it with its 4 per cent target, while ensuring long-term economic stability. With central banks around the world faced with difficult choices between growth and inflation, the RBI’s unwavering commitment to price stability is a notable standout.

India has experienced a surge in inflation, driven largely by sharp spikes in food prices due to erratic weather patterns. It is a challenge that the RBI is tackling head-on, recognising the impact of inflation on the daily lives of citizens. The RBI’s strategy included a series of rate hikes 250 basis points in all since May 2022, aimed at cooling surging prices.

This deliberate and gradual approach signals that the central bank is willing to do what it takes to stabilise the economy, even if it means putting a temporary squeeze on growth. The impact of these rate hikes is still rippling through the economy. RBI Governor Shaktikanta Das rightly acknowledges this. Such measures often take time to fully manifest their effects. By holding steady on rates, the RBI is giving the economy a chance to absorb the changes and adapt to the new environment.

However, it’s not just about taming inflation. The RBI is also attentive to economic growth. Despite its firm stance on inflation control, the central bank maintains a balanced approach. It recognises that a move to a neutral policy stance can only happen when inflation aligns with the target in a durable manner.

This balancing act isn’t without challenges. The RBI’s ability to further raise rates without hampering growth is limited. And that’s where liquidity management comes into play. The mention of open market sales of bonds to manage liquidity conditions indicates a nuanced approach. It demonstrates the RBI’s adaptability, its preparedness to employ a mix of tools to achieve its objectives.
Looking ahead, the central bank’s forecast suggests that inflation will average 5.4 per cent in the financial year 2023-24, still above its target but on a downward trend.

Economic growth is projected at 6.5 per cent for the year, showcasing India’s resilience in the face of global uncertainties. What is crucial to note here is that the RBI’s stance is firmly anchored in its mandate. The RBI’s aim is not just to hit its 4 per cent inflation target still a far cry momentarily but sustainably. The world is witnessing an intricate dance between growth and inflation with central banks trying to find the right balance. In India’s case, the focus on inflation management is a reflection of the profound impact of rising prices on the average Indian’s cost of living.