Rate hikes will take 5-6 quarters to have an impact on inflation, says MPC member Jayanth R Varma

The impact of rate hikes on inflation will be felt after five to six quarters, Jayanth R Varma, a member of RBI's Monetary Policy Committee (MPC), said on Monday.

"No doubt it (inflation) will come down. Because we have done monetary policy tightening," Varma, who is currently a professor of Indian Institute of Management (Ahmedabad), told news agency PTI.

"That tightening will have its impact. The monetary policy takes, you know, five to six quarters to have its impact and cool prices," he added.


"We started only in April. We will start seeing the effect of that tightening later in the year," he noted.

In view of runaway inflation, the RBI on September 30 raised short-term lending rate for the third consecutive time by 50 bps. That took the repo rate to 5.9 per cent.

Since May, the central bank has increased the key interest rate by 190 bps in total.

India's retail inflation in September rose to five-month high of 7.41 per cent from 7 per cent recorded in a month earlier.

This was the ninth consecutive month that prices remained well above RBI's upper tolerance level.

The MPC member observed that India's economic growth has actually been depressed for quite a few years now.

The World Bank on October 6 projected 6.5 per cent growth rate for the Indian economy for 2022-23, a drop of one percentage point from its June 2022 projections, citing deteriorating international environment, while IMF projected a growth rate of 6.8 per cent in 2022 as compared to 8.7 per cent in 2021 for India.

This poses a dual challenge for India, Varma observed. "Economic growth is below what we would like, inflation is higher than what we would like, and that poses a difficult challenge for the monetary policy," he said.

Varma said that the MPC has been prioritising inflation at the moment. "We are trying to bring inflation under control and then move from that," he added.