Rate cuts not on agenda, RBI remains extra vigilant on inflation, says Das

The RBI Governor underlined that in good times, the seeds of future vulnerabilities are sown, and 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,” he said.

On monetary policy, Das said the RBI is focused on growth-inflation dynamics and will take whatever action needs to be taken. “If you take a cue that the Reserve Bank of India 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,” he said.

The headline retail inflation rate fell to a three-month low of 5.02 per cent in September, but it has remained over the RBI’s medium-term target of 4 per cent for four years. The RBI has raised the policy repo rate by 250 bps cumulatively between May 2022 and February 2023 and left it unchanged since then. “The 250-bps hike is still working through the financial system. We have also appropriately fine-tuned our communication to ensure successful transmission of the rate hikes,” Das said.

While pointing out the risks from uncertainties such as the Israel-Hamas conflict over the last fortnight, Das said it has resulted in rise in US bond yields to all-time highs, which has wider implications for other economies, but macroeconomic fundamentals in India remain strong. “Crude oil prices have also gone up. Some of these uncertainties were there, but they have become more pronounced in some sense. What is different in the context of India, we are impacted by whatever is happening all over, no doubt about that.

Our macroeconomic fundamentals continue to be sound. Eventually, in these uncertain times, what matters is how strong are your macroeconomic fundamentals, how strong is your financial sector. I think on both these parameters India is well placed,” he said.

Das also said rupee is stable and the RBI intervenes in the forex market but only to prevent excessive volatility. “The dollar index has become strong, but if you look at the volatility of the Indian rupee, from January 1 till now, the rupee depreciation is 0.6 per cent whereas on the other side, the appreciation of the US dollar for the same period has been 3 per cent. So, the rupee is stable,” he said.