Reserve Bank of India (RBI) governor Shaktikanta Das on Tuesday said inflation has peaked and will reach the medium target of 4 per cent in the next two years without much sacrifice of economic growth. Earlier this month, high inflation forced the monetary policy committee (MPC) of the RBI to raise the policy repo rate again by 50 basis points.

While retail inflation has been running above the upper bound of 6 per cent since January, the MPC retained the CPI inflation forecast at 6.7 per cent for 2022-23. Projection for the second quarter is 7.1 per cent and 6.4 per cent, 5.8 per cent in the subsequent two quarters, repectively.

It was 5 per cent for the first quarter. Retail inflation had eased to 6.71 per cent in July from 7.01 per cent in the previous month. ``We said this about four, five months ago that we would like to bring down inflation over a time cycle of about two years or so. Therefore, if you say 2023-24, I think by and large what you say, may play out accordingly.. by and large, I think we are moving closer to 4 per cent in a steady manner without much growth sacrifice’’, Das told a TV channel.

According to Das, inflation is increasingly getting ``anchored’’. He pointed out inflation reached a peak of 7.8 per cent and in the subsequent three prints it has moderated. The RBI also does a survey among professional forecasters and investors, apart from consumer and household surveys. All these survey results, he noted, indicate that expectations around inflation are getting anchored.

Moreover, the bond yields, particularly at the long end, are reflecting the fact that inflation is getting anchored. Das cited the benchmark 10-year yield which before the May meeting of MPC — when it started the interest rate hike — was around 7.1-7.12 per cent. It has now stabilised at around 7.3 per cent. “Therefore, the way the bond yields, especially at the long end, behave is also reflective of whether inflation expectations are getting anchored’’, he observed.

Das reiterated that the central bank will look at the data before taking a call on interest rates. “The incoming data and the way the situation unfolds, as I describe the inflation growth dynamics, how the dynamics of inflation and growth plays out will determine our future action. Beyond that, it is very difficult and not desirable to give a forward guidance that we will stop or increase more or increase less because it creates unnecessary expectations,’’ he observed.

Replying to a question on India’s current account deficit (CAD), Das said CAD will be within manageable levels, even though crude oil prices have shown some hardening in the past few days. ``We have assumed $ 105 (per barrel) as the average price for the current year and therefore according to our assessment, CAD will be within manageable levels and we will be able to finance it in a reasonably comfortable manner’’.