On Wednesday, Reserve Bank of India (RBI) Governor Shaktikanta Das clarified that while the central bank has shifted towards a neutral monetary policy stance, this does not signal an imminent interest rate cut.
The announcement, made during a media briefing, aimed to manage market expectations that the RBI might soon ease its monetary policy in response to ongoing economic challenges.
Das asserted, “A change in stance doesn’t mean there will be a rate cut in the very next monetary policy meeting.”
He further emphasized that there were still substantial risks to inflation, particularly from rising food prices, and that cutting interest rates at this stage would be very risky.
The RBI’s decision to maintain interest rates unchanged for the 10th consecutive meeting has sparked speculation that the central bank was preparing to ease its policy to support economic growth.
However, Das was cautious, reiterating that any such move would only occur once inflation sustainably falls to the RBI’s target rate of 4% over a durable period.
The RBI’s shift from a withdrawal of accommodation stance to neutral has seen by some analysts as a sign that the central bank may be laying the groundwork for a rate cut.
But with inflation climbing from 3.65% in August to 5.49% in September, largely due to higher food prices, Das cautioned against hasty decisions.
The RBI Governor expressed confidence in the broader Indian economy despite inflationary concerns. He pointed out that, although the economic data mixed, the positives outweighed the negatives.
Das remarked, “I would not rush to declare that the economy is slowing down. The data coming in is mixed, but the positives outweigh the negatives. By and large, underlying economic activity remains strong.”
RBI Governor Highlights Strong Car Sales; Cites FMCG Weakness In Urban Areas
Additionally, the RBI Governor cited the robust recovery in car sales during October as a positive sign.
However, he acknowledged that the sales of fast-moving consumer goods (FMCGs) in urban areas remain subdued, signaling some areas of weakness.
Das also addressed concerns about the financial health of non-bank financial companies (NBFCs), noting that the sector remained in a robust state.
He pointed out that the RBI had only taken regulatory action against four NBFCs, out of the nearly 9,400 such entities operating in India.
These actions, he clarified, served as corrective measures to protect consumers and were not punitive.
On the issue of unsecured loans, Das urged caution among banks, but reassured that there was no evidence suggesting these loans went into speculative investments, such as the stock markets.
Governor Das discussed the ongoing pilot project for the Central Bank Digital Currency (CBDC), which the RBI introduced in November 2022 to settle inter-bank transactions in government securities.
He stressed that the RBI would not rush to launch the full-scale CBDC and that the pilot project remained in the experimental phase.
Das stated, “The RBI is still on the learning curve as far as the digital currency is concerned. We are not in a hurry to launch the CBDC. We will launch it once we fully satisfy ourselves.”
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