Reserve Bank of India (RBI) Governor Shaktikanta Das, speaking at a banking event in Mumbai, reasserted the central bank’s commitment to a dual focus on controlling inflation and fostering economic growth. At the forefront of his address was the significance of the Monetary Policy Committee’s (MPC) recent strategies, which successfully prioritized taming inflation, leading to a substantial alleviation of headline inflation.
Das specifically noted a moderation in core inflation, showcasing the efficacy of the implemented monetary policies. Despite this positive trend, he maintained a cautious stance on future rate actions, emphasizing the pivotal role of adhering to the inflation target while taking into account various economic factors.
A central theme of Das’s discourse was the imperative need for a balanced approach, stressing that both price stability and financial stability are indispensable for a thriving economy. He warned against an excessive focus on one aspect at the expense of the other, advocating for a holistic perspective in policymaking.
The retail inflation rate in India dipped to 4.87% in October, attributed to a favorable base effect and declining prices of certain commodities. However, the ascent in onion prices acted as a counterforce, preventing a more pronounced decrease. In September, the Consumer Price Index (CPI) recorded an inflation rate of 5.02%.
Persisting in its anti-inflationary stance, the RBI projected an average retail inflation of 5.6% for the current quarter. Given the October figure of 4.87%, meeting this forecast necessitates an average inflation of 6% in November-December.
While prevailing trends suggest the likelihood of the RBI’s forecast being undershot, financial experts, including IDFC First Bank’s Sen Gupta, anticipate the MPC maintaining the repo rate at 6.5 percent, potentially until the middle of 2024-25.
Looking ahead, the RBI’s Monetary Policy Committee is slated to convene on December 6-8 to deliberate on interest rates.
Governor Das also drew attention to the escalating interconnectivity between banks and Non-Banking Financial Companies (NBFCs), expressing concern about potential contagion risks. He urged banks to continuously evaluate their exposure to NBFCs, emphasizing the need for a reciprocal assessment of individual NBFCs’ exposure to multiple banks.
To mitigate risks, Das recommended that NBFCs diversify their funding sources and reduce reliance on banks for funding. As credit growth gains momentum, he called on both banks and NBFCs to ensure prudent and sustainable credit expansion, avoiding unwarranted risk-taking. Strengthening asset-liability management emerged as a key imperative.
Acknowledging the evolving financial landscape, Das recognized emerging risks and opportunities. He underscored the pivotal role of financial stability as the backbone of a country’s growth. Notably, despite external factors like elevated US treasury yields and a robust USD, the Indian Rupee exhibited low volatility, contributing to international confidence in India’s prospects.
In summation, Governor Shaktikanta Das delineated the challenges and priorities in the economic landscape, advocating for a balanced and vigilant approach to ensure both stability and growth in the Indian economy.
