The Reserve Bank of India (RBI) needs to keep a close watch on headline inflation to prevent frequent food price shocks from sparking a broad-based price increase, according to most members of its rate-setting panel.
"Recurring incidences of large and overlapping supply side shocks bring with them the risks of generalization of inflation impulses, possible loss of monetary policy credibility and de-anchoring of inflation expectations," RBI governor Shaktikanta Das said at the 6 October meeting of the monetary policy committee (MPC), minutes released on Friday showed.
Monetary policy, Das said, must remain "extra alert and ready to act" if the situation warrants. He reiterated that RBI's fundamental goal is to align inflation with the 4% target and anchor inflation expectations.
India's retail inflation eased to a three-month low of 5.02% in September as vegetable prices cooled. Inflation, as measured by the consumer price index, stood at 6.83% in August and 7.44% in July.
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