RBI’s letter may cite Ukraine war as main reason for high inflation: Report

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The members of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will meet on Thursday to discuss an explanation of why the central bank failed to keep inflation within the acceptable limit of 2-6 per cent for three consecutive quarters. Governor Shaktikanta Das will write a letter to the government explaining the reasons. Das might mention the war in Ukraine as the main reason, according to a report in Economic Times (ET).

The report added that for the past few months the MPC’s and the governor’s conduct has pointed at the war in Ukraine. “February 24 completely changed the picture,” ET report quoted Das as saying.

The world was already struggling with supply chain woes and high inflation when Russian president Vladimir Putin announced the invasion of Ukraine in late February. Soon, commodity prices skyrocketed and everything from oil to wheat became costlier.

Since this time inflation was not limited to a few countries, central banks across the globe found it difficult to navigate. Inflation in the UK, Germany, and the US touched a multi-decade high. In India, inflation stayed above the RBI’s upper tolerance limit of 6 per cent.

To control inflation, central banks started raising interest rates. On Wednesday, the Federal Reserve (Fed) announced a 75 basis points rate hike for the fourth time in a row. In India, the repo rate has gone up by 190 basis points to 5.9 per cent, since April.

The RBI will also tell the centre how it plans to bring inflation below 6 per cent and eventually to 4 per cent.

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