RBI not behind the curve; tolerance of high inflation was a necessity: Das

Refuting criticism of the RBI being behind the curve, Governor Shaktikanta Das on Friday defended the policy actions, saying shifting focus to inflation management earlier would have had “disastrous” consequences to the economy.

“Tolerance of high inflation was a necessity, and we stand by our decision,” Das said, speaking at an event organised by Financial Express here.

The central bank was in sync with the requirements of the economic developments, he said, adding the statutes governing the RBI clearly mention about managing inflation while being cognisant of the growth situation.

The RBI shifted focus to growth in the face of the pandemic and offered easy liquidity conditions. Despite that, the economy contracted 6.6 per cent in FY21, Das said, asking all about the consequences to growth in FY22 if the central bank had shifted its stance earlier.

It could not have shifted focus to fight inflation 3-4 months earlier as well, he made it clear.

In March, the RBI felt that economic activity was above the pre-pandemic levels and decided to shift focus to curbing inflation, Das said, adding that it could not deliver a large rate hike immediately.

“…the RBI has acted proactively and I would not agree with any perception or with any sort of description that the RBI has fallen behind the curve. Just imagine if we had started increasing the rates early, what would have happened to growth?”

Making it clear that the FY23 inflation estimate of 4.5 per cent in February 2022 was not optimistic, Das said the calculations were done with an assumption of crude being at USD 80 per barrel but the developments following the Russian invasion of Ukraine days after the central bank went public with this, have led to a changed scenario.

On liquidity, he said all the measures taken by the RBI during the pandemic were with a sunset clause but factors beyond the central bank’s control like the multiple waves of infections and the war have made the exit from easy liquidity measures longer.

The governor assured that an exit from the easy liquidity conditions will be smooth and there will be a “soft landing”.