RBI governor Shaktikanta Das on Saturday said there was no need to change the inflation target despite the central bank’s failure to keep it below the 6 per cent upper tolerance level for nine consecutive months while exuding confidence that the October print will be less than 7 per cent.

Inflation has been trending above the RBI’s upper tolerance level of 6 per cent since January this year.

The Reserve Bank of India Act says that if the central bank is unable to hold inflation between 2 and 6 per cent for three consecutive quarters, the central bank has to submit a report to the government explaining the reasons and detail the remedial actions it will be taking to check the price rise.

Earlier this month, a special meeting of the Monetary Policy Committee (MPC) was held to finalise the report explaining the reasons for missing the inflation target for three quarters.

This is the first time since the inflation-anchored monetary policy framework was adopted in 2016 that the RBI is being asked to explain why it slipped up on its statutory mandate.

Speaking at the HT Leadership Summit on Saturday, Das said there is no need to change the goal post for inflation targeting as higher than 6 per cent inflation would hurt growth.

According to the mandate given to the Reserve Bank by the Union government, the central bank is required to ensure that retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

Quoting an RBI internal research, Das said inflation above 6 per cent for India would be detrimental to growth. It will be counterproductive because the financial savings and investment climate will be hit and India will lose the confidence of international investors if inflation remains above 6 per cent for a prolonged period, he noted.

The inflation band of 2-6 per cent also provides RBI enough policy space to use during times of stress.

Although the inflation was about 5.5 per cent, the committee very consciously decided to tolerate higher inflation because during Covid-19 the priority was to support the economy by keeping liquidity easy with the help of lower interest rates, he said.