NEW DELHI - India's retail inflation will gradually start to moderate from current levels and is "highly unlikely" to remain above 6% for a sustainable period, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday.

Indian retail inflation eased in July after holding above 6% for two months in a row, helped by improving supplies following the lifting of pandemic restrictions.

"Our expectation is that from now on, inflation will gradually moderate, so the possibility of a sustained increase in inflation, beyond 6%, is highly unlikely," said Das in an interview with the Financial Times and the Indian Express.

Last month, Das, in the minutes of the latest monetary policy committee (MPC) meeting, said India needs to continue monetary policy support for the economy while remaining watchful of inflationary pressures.

Das said that the RBI has focussed on growth during the pandemic and instead of a 4% retail inflation target, it decided to operate in 2%-6% band.

The governor said the central bank would anchor inflation around 4% over time, without specifying a precise time for this.

"Our efforts will gradually move to 4% over a period of time, but that timing has to be decided," Das said.

Last month, the MPC held rates steady and said it would continue to retain its accommodative policy stance until growth has revived on a sustainable basis.

 

GROWTH REVIVAL

The governor said he was confident that Asia's third largest economy will reach the economic growth target of 9.5% during the fiscal year as tax collection, power demand and vehicle sales have improved.

The MPC had cut its key rates by 115 basis points to revive growth since March last year and the RBI flushed the market with liquidity through conventional and unconventional tools since April last year along with other global central banks.

The governor said there was no evidence to suggest that equity markets in the country that are trading at record levels are booming due to excess liquidity alone.

Das reiterated his reservations over digital currencies, adding he had conveyed his "major concerns" on cryptocurrencies and their impact on financial stability to the government.

He said loan growth in the Indian banking sector remained tepid and pandemic uncertainty continued to have an impact on credit offtake. Despite the challenges caused by the pandemic, bad loans remain manageable, he added.

(Reporting by Aftab Ahmed and Nupur Anand Editing by Bernadette Baum) ((Aftab.Ahmed@thomsonreuters.com; +911149548060;))