“With sticky and elevated inflation levels, anchoring inflation expectations will remain the top priority” is the headline message that the Reserve Bank of India has conveyed.

This stance has been bolstered by robust domestic demand , with private consumption leading the growth impulses. The RBI has done well in adopting a calibrated approach through a measured hike in policy rates that will minimise risks of disrupting the growth momentum.

A sharp reversal in the easing of food inflation since December 2010 along with elevated global commodity prices has led the Policy balance to tilt towards inflation management since persistence in food and fuel inflation has now begun to feed into generalised inflation expectations.

It is pertinent to temper inflation expectations, as structurally high inflation erodes medium-term growth prospects.

Going forward, it is imperative that structural imbalances get urgent and immediate attention to remove supply bottlenecks and alleviate price pressures. Supply constraints in agriculture, power and other infrastructure sectors have exacerbated inflation pressures.

However, the inherently slow process of supply-side adjustments leaves us with limited option of leaning heavily on monetary measures. A co-ordination of monetary, fiscal and administrative steps in the coming months will be able to address the concerns on inflation.

Appropriate, warranted

The monetary policy tightening measures are appropriate and warranted from the perspective of managing inflationary expectations.

I believe that inflation is an inequitable tax, and with financial inclusion emerging as a key catalyst for sustainable growth, the underlying focus of both monetary and fiscal policy will continue to be on inflation management.

(The author is Founder/MD & CEO, YES Bank).

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