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The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) member Jayanth R Varma has said that the impact of monetary policy tightening on inflation will be felt after five to six quarters. The central bank is mandated to keep inflation at 4 per cent with 2 per cent of upside and downside margins. In order to control rising inflation, the RBI on September 30, has raised short-term lending rate for the third consecutive time by 50 bps to take the repo rate to 5.9 per cent. Since May it has cumulatively increased the key interest rate by 190 bps.

He said ‘No doubt it (inflation) will come down. Because we have done monetary policy tightening. That tightening will have its impact. The monetary policy takes, you know, five to six quarters to have its impact and cool prices’. India’s consumer price index (CPI) based inflation in September rose to five-month high of 7.41 per cent from 7 per cent recorded in the preceding month, with the print remaining well above the upper tolerance level of RBI’s inflation targeting framework for the ninth consecutive month. He added that ‘We started only in April. We will start seeing the effect of that tightening later in the year’.

Varma noted that India’s economic growth has actually been depressed for many years now. He said ‘We are not fearing recession to say but growth is not what we would like’. He also said ‘there is the dual challenge. Economic growth is below what we would like, inflation is higher than what we would like, and that poses a difficult challenge for the monetary policy’. He said that the Monetary Policy Committee is prioritising inflation right now, and trying to bring inflation under control and then move from that.

On the Indian rupee touching a historic low, MPC member pointed out that the US dollar is strengthening against almost every currency. Noting that the US economy is doing pretty well, he said that the combination of economic growth plus tight monetary policy will tend to appreciate the dollar, ‘which is what we have seen in the past as well’. He said ‘the danger is much higher when the rupee is weak than when the dollar is strong’.