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Notwithstanding fears of imported inflation given the massive spike in commodity prices, especially crude oil, after Russia invaded Ukraine last month, Reserve Bank of India (RBI) Governor Shaktikanta Das has said there is no prospect of the economy falling into a stagflation vortex and retail inflation is expected to moderate going forward. Stagflation or recession-inflation is a situation in which prices rise too high but the economy slows or falls into a recession like situation and also unemployment jumps.

Under the agreement with the government the Reserve Bank has to ensure that CPI inflation remains at 4 per cent with a margin of 2 per cent on either side. Already retail inflation has risen to 6.07 per cent in February, crossing the upper band of the Parliamentary mandate. This is the second consecutive month in 2022 when retail inflation has crossed the 6 per cent mark having hit 6.01 per cent in January. The previous high was 6.26 per cent in June 2021. Similarly wholesale price inflation in February rose to 13.11 per cent on hardening of prices of crude and non-food items, even though food articles softened.

The governor also expects the rupee to remain stable. The rupee has been the worst performer among the emerging market peers since Russia’s invasion of Ukraine and plunged to a low of 77.27 early this month. According to the latest RBI data, the central bank defended the rupee vigorously earlier this month by selling close to $10 billion from the reserves, making it the highest forex intervention by the monetary authority in a decade.