Reserve Bank of India (RBI) Governor Shaktikanta Das has underscored the necessity for a continually disinflationary monetary policy to sustain the decline in inflation from its peak of 7.44 percent in July.
Speaking at the Kautilya Economic Conclave 2023, Governor Das stressed the importance of active measures to maintain price stability. He noted that price stability and financial stability are interconnected, and the RBI has been committed to effectively managing both.
In September, retail inflation dropped to a three-month low of 5.02 percent, primarily due to a moderation in vegetable and fuel prices, bringing it back within the RBI’s comfort zone. This improvement follows inflation rates of 6.83 percent in August and 7.41 percent in September 2022, with a peak of 7.44 percent recorded in July.
To combat rising inflation, the RBI has raised the key policy rate (repo) by 250 basis points since May 2022. However, a pause was put in place on rate hikes in February this year. Governor Das commented on the current status of these measures, stating, “We have maintained a pause on the policy rate. The 250 basis points rate hike is still working through the financial system. We have also appropriately fine-tuned our communication to ensure successful transmission of the interest rate hikes.”
Furthermore, the expansion of digital payments has facilitated more rapid and effective transmission of monetary policy, according to Governor Das. He emphasized that monetary policy is an ongoing challenge and cautioned against complacency.
In his address, the Governor also highlighted the global economy’s current challenges, including persistent inflation, slowing growth, and potential risks to financial stability. He noted that these challenges are compounded by recurring and overlapping shocks.
Governor Das expressed confidence in the Indian financial sector, stating that Indian banks should be able to maintain the minimum capital requirements even during stressful situations. He projected that India is poised to become a driving force in global economic growth, with an anticipated GDP growth rate of 6.5 percent for the current fiscal year ending in March 2024.
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