The Reserve Bank of India (RBI) is “firmly focused’’ on bringing down inflation to the targeted 4 per cent and will take policy response if supply shocks persist and spread, its governor Shaktikanta Das said on Tuesday.

Retail inflation has shot up to a 15-month high of 7.44 per cent in July on rising food prices.

Speaking on the ‘’Art of Monetary Policy Making: The Indian Context’’ at the Delhi School of Economics (DSE), Das said it was important to be on guard against the second order effects of supply shocks on the economy.

“We look through fleeting shocks but remain prepared to undertake policy responses if such shocks show signs of persistence and getting generalised. In such a scenario, monetary policy has to focus on containing the second round effects.’’

He reiterated the role of continued and timely supply side interventions by the government, which is critical in restricting the severity and duration of food price shocks. “It is necessary to be watchful of any risk to price stability and act timely and appropriately. We remain firmly focused on aligning inflation to the target of 4 per cent’’.

With monetary policy working with long and variable lags, Das said the forecasts of key macroeconomic variables play a vital role in the conduct of policy.

He said policy has to be forward looking and looking at the rear view mirror can lead to “policy errors’’.

e-rupee trials

The RBI is now looking at extending the trials of the wholesale central bank digital currency (CBDC) or the e-rupee to the inter-bank call money market from the government securities market.

The pilot in the wholesale segment was launched on November 1, 2022, with use case being limited to the settlement of secondary market transactions in government securities.

Bond market circles said that the introduction of CBDC in the call money market will not lead to any significant disruption since its volumes have declined in the secondary market of government securities.

Data from the Clearing Corporation of India Limited did not show any trade being conducted via CBDC in this segment on Tuesday. When the pilot was launched, the traded volume using CBDC stood at Rs 275 crore.

The daily turnover in the call market is Rs 11,644 crore compared with Rs 3.60 lakh crore in tri-party repo.