An Indian School of Business (ISB) professor has issued a stark warning that the Reserve Bank of India (RBI) faces a significant challenge in bringing inflation back to its 4% target. Professor Prasanna Tantri highlights an unprecedented expansion in India's money supply and bank credit, growing at their fastest combined pace in over a decade.
Tantri argues that policymakers might be underestimating the risk of persistent inflation by overly focusing monetary policy efforts on strengthening the rupee. His concerns are rooted in recent RBI data, which indicates a robust acceleration in key financial metrics.
Rapid Expansion in Money Supply and Credit
According to RBI data for October 31, 2026, currency in circulation surged by 14.2% year-on-year, with cash held by the public increasing by 14.7%. Broad money growth saw a sharp rise from 16% to 16.5% within just a fortnight. More notably, bank credit to the commercial sector expanded by 19.4%, a substantial jump from 11.2% a year earlier.
Professor Tantri emphasized the historical significance of these figures, noting, "No financial year since 2012–13 has ended with broad money and credit growing this fast together. Even in the pandemic year of 2020–21, broad money grew 12.2% and commercial credit about 6%." He questioned the feasibility of the RBI meeting its 4% inflation target, even in the medium term, given the current pace of monetary expansion.
Underestimating Persistent Inflation Risks
While acknowledging that favorable external factors like cheaper oil and a good monsoon might offer temporary relief from price pressures, Tantri cautioned that these might not be sufficient. He stated that achieving the inflation target at the current rate of real growth would necessitate a sustained fall in the velocity of money – meaning each rupee would need to change hands less often – which he finds unlikely.
His central worry revolves around the perceived misdirection of monetary policy. "I worry we are underestimating the risk of persistent inflation while focusing our policy efforts on pushing the rupee higher," the finance professor articulated.
Inflation Outlook Ahead of Key Data Release
Tantri's warning comes as India awaits its October retail inflation data, scheduled for release on November 12. Official data previously showed retail inflation climbing to 5.54% in September from 4.83% in August, largely driven by a 7.74% food inflation rate.
Economists widely anticipate a further acceleration in consumer inflation for October, primarily due to elevated food prices following uneven monsoon rainfall. Various polls project October retail inflation to range from 5.93% (Reuters) to 6.1% (Bloomberg Economics), with some forecasts for food inflation reaching as high as 9.1% (India Ratings and Research). Core inflation is also expected to strengthen, potentially reaching 4.5%.
If these forecasts materialize, October's inflation figures would further distance India from the RBI's crucial 4% target, intensifying the debate over the central bank's policy approach amidst robust economic growth and burgeoning money supply.