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Exclusive – Indian gov't in 'no rush' to set medium-term inflation target – sources

Aftab Ahmed

NEW DELHI (Reuters) – The Indian government is in no rush to push inflation – currently hovering around 7% and an eight-year high – back to the central bank’s 4% Two sources with direct knowledge of the matter said there were concerns that aggressive rate hikes could hurt economic growth. The anti-inflation policy response is reported to the government, but sources said the government would be reassured if the central bank took two years or more to bring inflation down to 4%.

Inflation is now under control and is expected to recover after the RBI raised interest rates by 140 basis points to 5.4% in the past four months, they added. Its target range to the top is 6%, which can be reached in three to six months.

“We are in no rush to raise inflation to 4 percent. Growth and inflation have to be balanced,” said one of the sources, who asked not to be named because discussions on the matter are not public.

“New Delhi is comfortable with inflation below 6% for the next three years. Six months,” the source added. “Our inflation is under control, especially after a series of measures by the government and the Reserve Bank of India.”

India’s finance ministry did not immediately respond to emails and instant messages seeking comment.

Many other large central banks, also worried about inflation, have been aggressively raising rates, and the Fed is widely expected to raise rates by at least 75 basis points on Wednesday.

The Inflation Targeting Monetary Policy Committee (MPC) of the Reserve Bank of India was established in 2016 with the mandate to keep inflation on either side of its 4% target within the 2 percentage point range.

If inflation remains below or above for three consecutive quarters, the RBI must report to the government the reasons for the failure to meet the target, what remedial measures will be taken, and the estimated time frame for reaching the target.

Inflation data scheduled for September in October 12 almost certain consumer price growth rate in India It remained above 6% for the third consecutive quarter, triggering reporting requirements.

(Graphic: India retail inflation over 6% since January, https://inew.news/wp-content/uploads/2022/09/localimages/chart.png632a94317b854.png)

For four years, RBI’s monetary policy maintained an accommodative growth bias, but reversed course in May, just after a “shocking” retail inflation reading of 7 in April.75% before the release at the highest level in eight years, driving

inflation has remained high since then, putting pressure on the central bank to Another rate hike when it meets in September. 30.

The government has taken a number of other measures to fight inflation, following previous restrictions on exports of wheat and sugar, last week’s restrictions Rice exports were cut to lower local prices, while petrol and diesel taxes were cut in May.

However, as economic growth slows, authorities are starting to worry about measures that will undermine domestic demand.

India’s economic growth rate from April to June was .5%, lower than the Indian Reserve Bank 35 forecast.2%, threatening the overall growth forecast of 7.5% for the full year.

Last week, global rating agency Fitch downgraded India’s 2022 )/23 growth The forecast was revised up to 7% from 7.8%, as higher inflation will lead to a tightening of monetary conditions.

Fitch said it expects India’s monetary policy rate to peak in the near term and stay at 6% next year.

India’s economic growth momentum is heading in the right direction and measures already taken by the central bank and government should be able to curb inflation, a second person familiar with the matter said.

RBI stated that interest rate decisions will be calibrated, measured and flexibly adjusted according to economic dynamics, while the market expects rates may increase 35 to 140 basis points later this month.

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