India inflation must be visibly on downward path for RBI to slacken: MPC member Jayanth Varma

Inflation in India should be "sustainable" within the 2%-6% tolerance band set by the central bank, and the path towards 4% should be "visible" before the war on inflation is eased, an MPC member said on Monday.

In India, food inflation reached a three-year high of 11.5% in July, led by an increase in the cost of vegetables, and contributed to overall inflation of 7.44%.

In an interview with Reuters Global Markets Forum (GMF), MPC member Jayanth Varma said that achieving the statutory medium-term aim of the band's center was less urgent than bringing inflation inside the RBI's comfort band.

A "real repo rate starts getting excessively high" when "projected inflation drops on a sustained basis below 5%," he said.

Varma noted that he was not shocked by the July retail inflation print and anticipates that August will be around the same levels, and that food inflation tends to be "transitory" if monetary policy is restrictive as it now is.

According to Varma, a lackluster monsoon can have just as much of an impact on growth as it can on inflation.

We need to keep a close eye on this, he said.

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Varma cautioned that an undue growth sacrifice must be avoided in the final drive to bring inflation back to the center of the band.

He also noted that beginning in the next quarter, inflation should start falling again.

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At its meeting earlier this month, India's six-member MPC decided to keep policy rates unchanged. The governor of the Reserve Bank of India, Shaktikanta Das, predicted last week that vegetable price declines would start in September.