Disinflation [UPSC Notes]

In June 2023, Reserve Bank of India Governor Shaktikanta Das said that the disinflation process will be slow and happen over a long period of time and the inflation target of 4% will be achieved only over the medium-term. 

What is Disinflation?

Disinflation is the process of slowing down of the rate of inflation and is used when there is a marginal reduction in the rate of inflation in the short term.

• Deflation is different from disinflation where in deflation the inflation rate turns negative and is considered the opposite of inflation.

Softening of Inflation:

• The RBI has been mandated by the government to keep consumer price index-based inflation (CPI) at 4 percent with a range of +/- 2 per cent.
• There are signs of softening of inflation as inflation reduced from a peak of 7.8 per cent in April 2022 to 4.7 per cent in April 2023.
• The inflation projection by the Reserve Bank of India for the financial year 2023-24 is 5.1 per cent.
• In view of the low inflation rate and to assess the impact of previous rate hike decisions the Reserve Bank of India decided on a pause in the April and June 2023 monetary policies.
• However, the Reserve Bank of India Governor Shaktikanta Das said that a pause in the rate hike decision is neither a pivot nor a change in policy direction.
• In a recent monetary policy decision in June ‘23, the RBI left the repo unchanged at 6.5 per cent. 
• The central bank has raised the repo rate by 250 basis points (bps) between May 2022 and February 2023 to check inflation.
• The Reserve Bank of India maintains the stability of the Indian financial system through the conduct of monetary policies as financial instabilities can undermine economic growth and impede monetary policy transmission.
• Monetary policy and financial stability play a complementary role in maintaining price stability.

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