According to the governor, the RBI remains “very focused” on inflation dynamics and stood ready to take “whatever action that needs to be taken.”
An interest rate cut is not on the Reserve Bank of India’s (RBI) agenda right now as it remains “extra vigilant” on inflation, which needs to moderate to “4% on a sustained basis,” Governor Shaktikanta Das said on Friday.
Speaking at an event here, Das said: “If you take a cue that the RBI is thinking of reducing interest rates, sorry, there is no such agenda about it. Interest rates will remain high. How long they will remain high, I think, only time and the way the world is evolving will tell.”
The rupee gained on Friday after Das’s hawkish comments, rising 0.2% to 83.08 against the dollar.
Stating that some of the external uncertainties — rising USD bond yield and elevated crude prices – have lately “become more pronounced,” Das added: “In the current situation, monetary policy must remain actively disinflationary to ensure that ongoing disinflation process progresses smoothly.”
According to the governor, the RBI remains “very focused” on inflation dynamics and stood ready to take “whatever action that needs to be taken.”
The CPI inflation moderated to a three-month low 5% in September 2023, lower than analysts’ estimate of around 5.5%, offering considerable relief. However, food inflation continues to be elevated. Moreover, the uneven monsoon, lag in sowing of crucial kharif crops such as pulses and oilseeds and modest reservoir levels do not augur well for the outlook for food inflation, rating agency Icra said.
The Monetary Policy Committee of the RBI kept its benchmark interest rate unchanged for the fourth straight time on October 6 and signalled policy will remain relatively tight unless inflation settles durably around 4%, the midpoint of the RBI’s 2%-6% target band.
“If you look at the volatility of the Indian rupee, from January 1 till now, the rupee depreciation is 0.6% whereas on the other side, the appreciation of the US dollar for the same period has been 3%. So, the rupee is stable. We are there in the forex market to prevent excessive volatility,” Das said talking about external factors driving exchange rates.
In the last fortnight, US bond yields have risen, which has wider implications for other economies, the governor said. Crude oil prices have also gone up. “Some of these uncertainties were there, but they have become more pronounced in some sense,” he said.
A stronger US dollar and higher interest rates could lead to capital outflows accentuating capital outflows from emerging market economies, analysts have said.
“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,” Das said.
Das reiterated the RBI’s growth forecast of 6.5% for the current financial year, saying India is “poised to become the new growth engine of the world.”
Source:financialexpress.com