Indicating a policy rate cut may not be around the corner, Reserve Bank of India Governor Shaktikanta Das Friday said wide divergences and large volatilities in inflation across groups — fuel, food and the rest — posed challenges for inflation assessment. And this warranted careful analysis of new data before taking any action to balance the twin objectives of growth and inflation.
In his first public address after taking charge as RBI Governor, Das, speaking at the Vibrant Gujarat Global Summit, said, “While food inflation has turned negative since October 2018 and fuel inflation has been highly volatile, inflation excluding food and fuel remains sticky at close to 6 per cent.”
On the other hand, Das expected growth to be more sustainable now, propelled by private consumption and investment. India will grow at around 7.5 per cent a year in the medium term, he said, quoting the projections of IMF and the World Bank. Expecting investments that accelerated by 12.2 per cent in 2018-19 to strengthen further, he said, going forward, the foremost priority was to preserve domestic macroeconomic and financial stability.
The spill-over effects on emerging markets due to increase in global interest rates could be profound, the Governor said, even as downward risks to global growth, trade and investment have risen. “We, therefore, need to brace ourselves for any sudden bout of global financial market turbulence that domestic economy and financial markets may face in the period ahead,” her said, signaling again that the RBI may not be ready yet to ease the monetary policy.
Just a day earlier, industry leaders had sought a reduction in repo rate and cash reserve ratio to kick-start investments and boost growth in their meeting with the RBI Governor. The central bank had kept the repo rate unchanged at 6.5 per cent at its policy review on December 5 last year. This was in line with its stance of “calibrated tightening of monetary policy”.
According to the RBI Governor, besides inflation, the other key policy challenges confronting the economy relate to the financial and external sectors. Emphasising it would be critical to contain further slippages in bank NPAs, he said, “There is need for continued vigil on the asset quality of banks as well as resolution of stressed assets with a focus on implementation of the new resolution framework. Another area where policy action is required is corporate governance in banks with a focus on transparency and accountability.”
Das also called for a close monitoring of external sector, given the sharp movements in global crude oil prices and global financial market volatility. “These are the two global shocks that have implications for our CAD and financial flows,” he said. Developments around Brexit was also a challenge Indian companies face, he added.