Price stability is the economic condition in which the domestic currency retains its purchasing power by maintaining low and stable inflation as measured by the Consumer Price Index over the medium term. It doesn’t mean that the prices of goods do not change but they change at a moderate pace.
Stable prices encourage spending and investment on the side of consumers, both of which are crucial for economic growth.
When prices are stable, businesses find it easier to plan for the future, make capital investments, and hire additional labour. Changes in the price of goods can make these activities risky, which could lead to reduced investments and, consequently, lower economic growth.
The Governor of the Reserve Bank of India (RBI) Shaktikanta Das said on August 23, “Price stability has to be the basis of sustainable growth. Without price stability, any growth that you try to achieve in the short term will only have a short life. So price stability is absolutely essential for maintaining the momentum of growth and sustaining the country’s GDP growth.”
“The financial stability objective is enabled by the powers vested with the Reserve Bank for regulation and supervision of the Indian financial system and its various segments, including the money, debt, and foreign exchange segments and the payment and settlement system,” Das added.
He further addressed that the Reserve Bank’s macroeconomic and monetary policy has focused on maintaining price stability, ensuring adequate flow of credit to sustain the growth momentum, and securing financial stability.
Measures have also been taken to implement a “state-of-the-art” market infrastructure, pilot launch of central bank digital currency (CBDC), and internationalization of the rupee. “The COVID crisis was converted into an opportunity by harnessing the best benefits of digitalization,” Das said.
In the end, Governor Das said certain sectors such as agriculture, manufacturing, services, technology, innovation, and startups can provide significant growth opportunities for India in the next 25 years and that the country’s demography enables it to support the growth.
