Raghuram Rajan, the former governor of the Reserve Bank of India, is concerned about an economic recovery. Photo: AFP

Former Reserve Bank of India governor Raghuram Rajan said India’s inflation is going up and the central bank at some point will have to increase interest rates. He added that the hikes need not be considered “anti-national” by politicians and bureaucrats.

In a post on social media site LinkedIn, he said the war against inflation was never over. He wrote that a rise in rates “is an investment in economic stability, whose greatest beneficiary is the Indian citizen.”

He also pointed out that the rest of the world is already doing it.

India’s retail inflation in March had surged to a 17-month high of 6.95% on the back of costlier food items, according to government data. This is much higher than the Reserve Bank of India’s tolerance limit of 4% with a margin of 2% on either side.

It was also the third consecutive month of Consumer Price Index-based inflation crossing the 6% mark.

Wholesale price inflation touched a four-month high in March on the back of high fuel and commodity prices. The wholesale price index inflation rose to 14.55% in March, from 13.11% in February, and has remained in double-digit territory for the last 12 months.

Recalling his tenure as central bank governor from 2013 to 2016, he said when he took over inflation was at 9.5% and the rupee was in free fall. The Reserve Bank raised the repo rate from 7.25% to 8% to fight inflation.

“As inflation came down we cut the repo rate by 150 basis points to 6.5%,” he wrote.

Rajan also noted that the central bank had then “signed on to an inflation-targeting framework with the government.” All these measures, he said, helped shore up inflation, slowed the currency crisis and improved gross domestic product growth.

The Reserve Bank of India has kept interest rates unchanged at a low rate for the last two years to promote economic recovery from the Covid-19 pandemic. Its stance was to focus on growth, with any inflation considered transitory.

But in the bank’s last meeting in the first week of April, officials conceded that inflation needs to be brought under control. It raised the retail inflation projection for the current fiscal year to 5.7%, from an earlier forecast of 4.5%. Analysts feel that if inflation continues to run high in April, the central bank may consider raising interest rates.

The current uptick in inflation comes at a time when the Indian economy was showing signs of recovery after a decline in the number of Covid-19 cases and the easing of lockdown curbs. Experts fear a long spell of inflation will dampen growth.