Reserve Bank Governor Shaktikanta Das on Friday stressed that the monetary policy must remain actively disinflationary to ensure that the decline in inflation from its peak of 7.44 per cent in July continues smoothly.
Addressing the Kautilya Economic Conclave 2023, he also said price stability and financial stability complement each other and it has been an endeavor at RBI to manage both efficiently.
Retail inflation declined to a three-month low of 5.02 per cent annually in September on account of moderation in vegetables and fuel prices, and was back within the Reserve Bank’s comfort level.
Consumer Price Index (CPI)-based inflation was 6.83 percent in August and 7.41 percent in September of 2022. The rate of inflation peaked in July at 7.44 percent.
In order to control inflation, the Reserve Bank has increased the main policy rate (repo) by 250 basis points since May 2022. However, in February of this year, it stopped raising interest rates.
“We have kept the policy rate on hold. The financial system is still adjusting to the 250 basis point rate boost. To successfully transmit the interest rate increases, we have also properly improved our communication, the Governor remarked.
Additionally, he claimed that the growth of digital payments has sped up and improved the transmission of monetary policy.
Das further emphasized that there is no room for complacency because monetary policy is constantly difficult.
The Governor also mentioned a trio of threats to financial stability, slowing growth, and inflation in his speech about the state of the world economy.
“First, there hasn’t been any moderation in inflation, which is being disrupted by repeated and overlapping shocks. Second, growth is slowing down, and the impediments are getting worse. And third, hidden threats to the economy’s stability,” he added.
He asserted that Indian banks would be able to sustain minimal capital requirements even in times of stress with reference to the domestic financial system.
According to Das, India is positioned to replace China as the main driver of global economy, and the country’s GDP is projected to expand by 6.5% in the current fiscal year that ends in March 2024.