RBI Governor: Monetary Policy Ought To Remain Actively Disinflationary

On Friday, Reserve Bank Governor Shaktikanta Das emphasized that the monetary policy must be actively disinflationary to ensure that the drop in inflation from its peak of 7.44 percent in July continues smoothly.

In his address to the Kautilya Economic Conclave 2023, he also stated that price stability and financial stability complement each other and that the RBI has worked hard to manage both properly.

Retail inflation fell to a three-month low of 5.02 percent year-on-year in September, thanks to lower vegetables and fuel prices, and was back within the Reserve Bank’s comfort zone.

Consumer Price Index (CPI) inflation was 6.83 percent in August and 7.41 percent in September 2022. In July, inflation reached a high of 7.44 percent.

To combat inflation, the Reserve Bank has raised the main policy rate (repo) by 250 basis points since May 2022. However, it paused the rate hike in February of this year.

“We have maintained a pause on policy rate. So far 250 basis points rate hike is still working through the financial system. We have also appropriately fine-tuned our communication to ensure a successful transmission of the interest rate hikes”, said Shaktikanta Das.

He also stated that the growth of digital payments has made monetary policy transmission more efficient and effective.

Das also emphasized that monetary policy is always difficult and that there is no room for complacency.

In his statement, the Governor stated that the global economy is currently experiencing a slew of concerns including inflation, slowing growth, and threats to financial stability.

“First, no moderation in inflation which is getting interrupted by recurring and overlapping shocks. Second, slowing growth, and that too with fresh and enhanced obstacles. And third, lurking risks of financial stability”, the governor said.

In terms of the local financial sector, he stated that Indian banks would be able to meet minimal capital requirements even in times of crisis.

Das stated that India is prepared to become the new engine of the global economy and that the country is likely to achieve a 6.5 percent GDP growth in the current fiscal year, which ends in March 2024.

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