RBI warns persistent high inflation could hit growth

The Reserve Bank of India (RBI) on Saturday warned that continued inflation beyond the threshold level of 4-6 per cent, could hurt economic growth in the medium term.

''The Reserve Bank's current assessment suggests that the threshold level of inflation for India is in the range of four-six per cent. If inflation persists beyond this level, it could lower economic growth over the medium term. These costs, therefore, necessitate monetary policy response to control inflation,'' Deepak Mohanty, executive director, RBI, said in a speech at the Indian Institute of Technology, Guwahati.

Even as the high commodity prices were expected to stay firm, global inflation could still pose a threat to price stability if it continued to persist.

According to Mohanty, the stance of the central bank was to lower medium-term inflation to 3 per cent, which was consistent with the country's integration with the global economy.

''In this direction, monetary policy aims to contain perceptions of inflation in the range of 4-4.5 per cent, with a particular focus on the behaviour of the non-food manufacturing component,'' he said. This is seen as a marked departure from the stance in some quarters which take high inflation as 'new normal.'

India's headline inflation has continued to rule above the RBI's comfort zone for over a year now, the measures introduced to tighten policy. The apex bank has increased the key policy rates as many as 11 times since March 2010. With supply side factors stoking food inflation, the central bank's inflation management became more critical.