BUSINESS

Central banks globally accept high inflation

Policy dilemmas have become more acute, says Reddy

MUMBAI: At a time when the rate of price rise in India is over 11 per cent, the Reserve Bank of India has said that central banks worldwide implicitly accept that high inflation caused by higher prices of food, energy and other commodities may be a reality in the immediate future.

“The most urgent and short-term priority for central bankers at the current juncture seems to be to calm the nerves about inflation or to anchor inflation expectations, with an implicit recognition that a somewhat elevated inflation in the short-term may be difficult to avoid,” RBI Governor Y. V. Reddy said in Manchester recently.

In recent weeks, concerns over inflationary pressures have taken centre-stage globally even while there are no indications as to whether threats to financial stability have been fully resolved and whether persistent threats of recession in the U.S. have abated, he said in his address to the meeting of Task Forces on Financial Markets.

“Consequently, the policy dilemmas have become more acute at the current juncture,” he said, referring to conflicting objectives of controlling inflation and promoting growth. These acute policy dilemmas at the current juncture between growth and inflation have to be faced in the background of financial turbulence which is yet to calm down, he said.

High inflation, when accompanied by higher variability of inflation, raised greater uncertainties, he said.

Dr. Reddy added that higher and more volatile prices of food, energy and other commodities have caused significant upside bias to inflation and inflation expectations across the world, complicating the conduct of monetary policy at a time of severe financial stress. India’s inflation rose to 11.63 per cent for the week ended June 21. Dr. Reddy said in recent weeks concerns over inflationary pressures globally have taken centre stage, even while there are no indications as to whether threats to financial stability have been fully resolved and whether persistent threats of recession in the U.S. have abated. — PTI

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