The Reserve Bank of India is prioritising inflation over growth, which is manifested by the recent hikes in repo rate, an official of the central bank said on Friday.
Speaking at an interactive session organised by the Merchants’ Chamber of Commerce and Industry here, he also said financial markets across asset classes and geographies witnessed unprecedented volatility during the past two years due to the COVID-19 pandemic.
"Central banks across the globe will raise interest rates in future owing to much higher than expected inflation. This is a major risk,” said Radha Shyam Ratho, Executive Director, RBI.
He said the RBI is giving priority to inflation over growth so that the level of price rise remains within targets without affecting growth.
The apex bank had recently raised the interest rate by 50 basis points to a two-year high of 4.9 per cent. The rate hike came on the back of a 40 basis-point increase effected at an unscheduled meeting on May 4.
Ratho said the bond market has become very volatile, too, which is a rare phenomenon. "This will have an impact on the domestic economy,” he added.
The RBI official said despite the Russia-Ukraine conflict disrupting the global supply chain, India's external sector remains healthy, and the current account deficit (CAD) is sustainable with normal capital flows.
Referring to exchange rate management, he said the central bank does not have a fixed band and it is determined by market forces.
Ratho said the RBI has projected real GDP growth of 7.2 per cent with inflation forecast being revised 100 basis points upwards to 6.7 per cent.