Interest rate cuts are not on the Reserve Bank of India's (RBI) agenda, Governor Shaktikanta Das has said. Speaking at the Kautilya Economic Conclave on October 20, the Indian central bank chief added that the RBI remains "very focused" on India's inflation dynamics and stood ready to take "whatever action that needs to be taken".
Speaking in a global context, Das said central banks are indeed saying currently that interest rates may stay high for longer. However, he cautioned that giving anything more than a "generalised kind of forward guidance" was challenging, as it's not possible to predict how central banks will respond in these uncertain times.
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"So far as our (India's) interest rates are concerned, if you take a cue that the Reserve Bank is thinking of reducing interest rates – sorry, there is no such agenda at the moment. Interest rates will remain high; how long they will remain high, I think only time and the way the world is evolving will tell," Das said.
"We need to see sustained decline in inflation - that is our objective, to reach 4 percent," he added.
Das' comments come a day after the RBI's monthly State of the Economy article suggested that a change in Indian monetary policy may not be far away. The article, published on October 19 and co-authored by Monetary Policy Committee (MPC) member and RBI Deputy Governor Michael Patra, suggested that the MPC's October 6 resolution "reflects the approaching of an inflection point in the conduct of monetary policy in India".
An inflection point is a moment when a significant change takes place.
After hiking the policy repo rate by 250 basis points to 6.5 percent in 2022-23 to bring down inflation, the MPC left the interest rates unchanged for the fourth meeting in a row on October 6. Economists are now penciling in the first interest rate cut around April-June 2024, although the central bank's hawkish focus on the 4 percent inflation target has left markets concerned.
Data released after the MPC's October 6 decision showed headline retail inflation fell more than expected to a three-month low of 5.02 percent in September, while core inflation - or inflation excluding food and fuel - hit a new multi-year low of 4.5 percent. Economists expect headline inflation to fall further in October - data for which will be released on November 13 - and come closer to 4 percent.
In his speech at the economic conclave, the RBI governor reiterated that monetary policy "must remain actively disinflationary" in the current situation so that the ongoing disinflation process "progresses smoothly".
While he acknowledged the impact of global economic developments on India, Das said domestic monetary policy was determined by local factors.
"Eventually, in these uncertain times, what matters is how strong is your macroeconomic fundamentals, how strong is your financial sector. I think on both these parameters India is well placed," he said.
Commenting on financial stability concerns, which the central bank highlighted earlier this month, Das said the RBI has adopted a prudent approach. And while the Indian financial sector has been stable and resilient, there was "no room for complacency".
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"...it is during good times that vulnerabilities may creep in; hence, buffers are best built up during good times. Banks, NBFCs and other financial sector entities should remain vigilant and complete the pending repairs, if any, to their houses. Roofs need to be fixed, walls need to be further strengthened and foundations need to be augmented when the weather is good to withstand potential adverse weather events in the future," the governor said.
On the rupee's exchange rate, the RBI governor said there were no concerns, adding that the Indian currency had depreciated by only 0.6 percent so far in 2023 as against a 3 percent appreciation of the US dollar.
"So rupee is stable. We are there in the forex market to prevent excessive volatility," he said.
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