India inflation must be visibly on downward path for cenbank to slacken: MPC member Varma

MUMBAI, Aug 28 (Reuters) - Indias inflation should be brought within the central banks 2%-6% tolerance band on a sustainable basis and its trajectory towards 4% must be \“visible\” before the war on inflation can be slackened, a monetary policy committee (MPC) member said on Monday.

Led by vegetables, food inflation in India soared to an over three-year high of 11.5% in July, pushing headline inflation to 7.44%.

MPC member Jayanth Varma told the Reuters Global Markets Forum (GMF) in an interview that there was much greater urgency to bring inflation to within the Reserve Bank of Indias (RBI) comfort band than it was to bring it to the mandated medium-term target of the centre of the band.

\“It is when projected inflation drops on a sustained basis below 5% that the real repo rate starts getting excessively high,\” he added.

Food inflation tends to be transitory if monetary policy is restrictive as it currently is, Varma said, adding that he was not surprised by the July retail inflation print and expects August to be around similar levels.

Varma said rural demand was an issue, and a poor monsoon was as much of a growth shock as it was an inflation shock.

\“So we need to watch this carefully,\” he added.

Varma warned, however, that the final push towards bringing inflation back towards the centre of the band must avoid an excessive growth sacrifice.

Inflation is expected to resume its downward trajectory from the next quarter, he added.

Indias six-member MPC held policy rates steady at its meeting earlier this month. Last week, RBI governor Shaktikanta Das said he expected vegetable prices to begin easing by September.