Ahead of the curve in managing inflation

ET Bureau India's inflation is rising on food and fuel pressures, while the RBI balances price stability with supporting economic growth. (Representative Image) Headline inflation has been ticking up in recent months, and is above the 4% RBI target. Price pressures are largely from volatile food and fuel components due to an erratic monsoon and oil supply disruption from West Asia. Wholesale price inflation is approaching 10% as global supply chain disruptions feed into input costs. But core inflation, minus food and fuel, is relatively stable and within RBI's comfort zone. Interest rate and liquidity management tend to look through episodic spikes in food and fuel inflation, unless these feed into a generalised phenomenon. RBI projects inflation for 2026-27 at 5%, with a peak in Q3 within its 6% tolerance band. The stance of RBI's monetary policy committee will be informed by resilient economic growth as well as the unfolding inflation scenario. Read more: Expensive living? Inflation hits coriander to cars in India A surge in dollar inflows through the special FCNR(B) scheme shouldn't add to inflationary pressure. RBI actively manages liquidity to accommodate forex flows. It will drain excess liquidity to prevent the economy from overheating. The excess liquidity with banks on account of bulging dollar deposits will be drained through enhanced sales of gilts by RBI. Stabilising effects of the dollar inflow on the rupee also contribute to lowering of imported inflation. This is well within RBI's playbook after having conducted a series of dollar mopping-up exercises over the decades. Sterilising domestic liquidity from these surges is a part of that exercise. The premature close of the special FCNR(B) scheme indicates the vigil the central bank is keeping on liquidity. Read more: Indian FMCG stares at broadening commodity inflation and a new source of cost pressure RBI is unlikely to be behind the curve in managing inflation, after having had to explain its inability to control it within the mandated band following the Ukraine conflict. If India maintains its economic momentum, there is a likelihood the interest rate upcycle could be advanced. However, on current indications, growth is losing steam as inflation remains within manageable limits. RBI is known for trying to minimise the growth sacrifice as it maintains price stability. Add as a Reliable and Trusted News Source Add Now! Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. An old India Inc habit: Ignore the nudge, wait for the stick Q1 investment numbers look stellar, but are we celebrating too early? Season of change in accounting policy: A simple AI prompt can tell you a lot Is crude oil becoming a financial problem? Patent Cliff approaching: Can Indian pharma companies repeat past success? ET Prime special: Bigger, Better or Both? Understanding business to figure out the mystery: Power Grid Corp – Part 1 ET Prime special series: 2013 to 2026. Not years, but evidence: Power Grid, Part 2 When a CFO resigns, is 'personal reasons' explanation enough? What LIC should do to remain money-spinner for govt, policyholders From survival to 193 mn subscribers: Is Vi finally making a comeback?