Time Has Come For RBI To Make A Pivot In Its Policy: Deutsche Bank’s Kaushik Das

A naval officer walks past the Reserve Bank of India building in Mumbai, India. (Photographer: Kanishka Sonthalia/Bloomberg)

Time Has Come For RBI To Make A Pivot In Its Policy: Deutsche Bank’s Kaushik Das

Deutsche Bank’s, Director and Chief Economist, Kaushik Das believes that the time has come for the RBI to make a pivot in its August policy as the inflation is likely to stay above 6% for the next few months, which is much higher than the RBI’s target of 4-6%.

In May the CPI inflation rose to 6.3% from 4.23% in April, exceeding the monetary policy committee's target for the first time since November. “There was a broad-based increase in prices and what happened was that core prices also went up very sharply in May,” he said.

Das expects inflation to rise to 6.6% in June but if core prices go up again then it could be closer to 7% or higher. “When RBI goes into the August monetary policy, they will have growth forecast at 9.5% they will not change that because you will not get any more new information to make that change. But at the same time inflation forecast which RBI revised up marginally to 5.1% from 5% would probably have to go to 5.8-5.9%,” he said.

Just on the basis of growth inflation mix from a forward-looking trajectory I think a pivot needs to be made in the August policy.
Kaushik Das, Director and Chief Economist, Deutsche Bank

Inflation expectations, according to Das, have also gone up during the pandemic. “Before the Covid-19 pandemic it was at 9% in March 2020. In April or May of 2020, it went up to 10.2%. And since then, it has not come below 10%. Inflation expectations are getting entrenched at 10.5% kind of an average and that is much higher than RBI would have liked it to be,” he said.

He further added that, “The absolute number or the level of inflation is so high that beyond a point it would be very difficult for RBI to say they are going to look through it completely”

However, Das believes that the RBI will not change its accommodative stance in August, “but even while staying with the accommodative stance they can change their tone, giving more importance to inflation which will prepare the markets,” he said.

Watch the full conversation below:

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