dynamics of inflation in south asia 1 good afternoon and a warm welcome to south asian association for regional cooperation ( saarc ) central bank colleagues participating in this first physical seminar under the aegis of saarcfinance after the onset of the pandemic. greetings to ms. dechen pelzom, executive director, royal monetary authority of bhutan. we are delighted to have with us colleagues from the ministry of finance, and virtual participants from our central banks, the bank for international settlements ( bis ) and the international monetary fund ( imf ). i am joined in our appreciation of your participation by colleagues from the reserve bank of india ( rbi ) representing various departments. this seminar marks the fulfilment of the commitment made by india in the 41st meeting of the saarcfinance governor ’ s group in march 2021. given the developments in our countries and the global inflation crisis gripping the world around us, the seminar ’ s theme – the dynamics of inflation and its control in south asia - could not have been more timely and relevant. from a broader perspective, seminars and workshops of this type under the mandate of saarcfinance have proved to be an effective avenue for intensifying our engagement through sharing of knowledge and experiences as well as by energising person - to - person keynote address delivered by dr. michael debabrata patra, deputy governor, reserve bank of india ( rbi ) at the saarcfinance seminar hosted by india on august 24, 2022 at new delhi. valuable inputs from smita sharma and soumasree tiwari, and editorial assistance from vineet kumar srivastava are gratefully acknowledged. interactions. our next seminar will be on the saarcfinance database, which will be hosted by the maldives monetary authority. saarc : our history by way of historical background, the south asian association of regional cooperation ( saarc ) was created in 1985 as an expression of the collective desire for fostering shared understanding and collaboration in our region. at present, afghanistan, bangladesh, bhutan, india, nepal, maldives, pakistan and sri lanka are members of the saarc. over the years, our countries have developed strong linkages in the form of trade, remittances and financial transactions, over and above our strong cultural ties and shared history. we now look forward to strengthening our economies with the goal of accelerating economic development and prosperity by tapping into the full growth potential of

risks to our growth prospects are slanted to the downside. the dark shadow of stagflation looms over us and our outlook. the indian experience in india, we have adopted an inflation targeting framework since 2016, with a target of 4 per cent defined in terms of headline cpi inflation within a tolerance band of + / - 2 per cent around it. policy decisions are taken by a majority vote by a monetary policy committee ( mpc ). there are strong accountability criteria embedded into the framework by legislation and associated regulations in the case of deviations of inflation outcomes from the target. while inflation averaged under 4 per cent during 2016 - 20, it rose to 6. 2 per cent in 2020 - 21 – the year of the pandemic ’ s first wave. although it moderated in the following year, i. e., 2021 - 22 to 5. 5 per cent and was projected to ease further to 4. 5 per cent in 2022 - 23 as recently as february 2022, the war in ukraine has altered the outlook drastically. although it appears to be moderating from its peak of 7. 8 per cent in april this year, we would prefer to await more incoming data before we are convinced that this a durable trend. while some easing of international commodity prices and supply chain pressures, both globally and domestically, are positive developments, upside risks remain in the form of potential second order effects and the transmission of input cost pressures to the sticky core component of inflation. for the financial year 2022 - 23 ( april - march ) as a whole, the rbi has projected that headline cpi inflation would average 6. 7 per cent. accordingly, the rbi has embarked on a front - loaded monetary policy response, with a cumulative 140 basis points increase in the policy rate so far, besides narrowing of the policy rate corridor in april that pulled up money market rates by 40 basis points from pandemic lows. in its latest meeting in early august, the monetary policy committee ( mpc ) decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. simultaneously, the rbi is engaged in withdrawal of the liquidity infused into the economy during the pandemic in a calibrated, multi - year time frame. as the inflation forecast performs the role of an intermediate target in the monetary policy framework, the rbi has taken several initiatives to strengthen inflation monitoring and improve the accuracy of forecasting. besides widening the ambit and depth