India’s central bank is in no hurry to reverse the course of record low interest rates, despite rising inflation concerns, Reserve Bank Governor Shaktikanta Das told CNBC.
“We are constantly monitoring the situation and will act at the right time. At the present time, we believe the right time has not come,” Das told CNBC’s Tanvir Gill.
The RBI last reduced its replacement rate, the rate it lends to commercial banks, in May 2020 and has maintained an accommodative monetary policy stance to help India recover its economy.
Since last year, the central bank has introduced several dozen measures aimed at boosting growth and mitigating the impacts of Covid-19 on the economy.
Once the “renaissance of economic activity shows signs of sustainability, signs of sustainability, I think it should be a good time for the Reserve Bank, or monetary policy, to think or perhaps consider a change of direction,” he said. to say. in an interview recorded Thursday.
All our actions will be calibrated, on time and prudent.
Shaktikanta Das
Governor of the Reserve Bank of India
He added that the central bank will not announce any policy change without first preparing the markets.
“All our actions will be calibrated, on time and prudent,” Das said. “We don’t want to give any sudden shock or any sudden surprise to the markets.”
Growth momentum
However, capacity utilization, which measures the full utilization of firms by firms, is still not even close to pre-pandemic levels, he said.
“Right now, we are witnessing the reactivation of economic activity; there is still uncertainty surrounding the pandemic,” Das said. He noted small rises in Covid-19 cases in some pockets of the country, according to media reports that the Indian state of Kerala has seen a sharp rise in infection.
Inflation is “transient”
I would not put stagflation as a topic on the table for discussion in the context of India.
Shaktikanta Das
Governor of the Reserve Bank of India
Although the RBI’s inflation target is 4%, it allows consumer prices to range from 2% to 6%. Retail inflation in India remained above 6% year-on-year in May and June, before moderating to 5.59% in July.
“Current inflation looks transient,” Das told CNBC, adding that the central bank expects inflation to moderate in the coming months.
He rejected the idea that India could be caught in a stagflation, a situation where a country’s growth rate is low, the unemployment rate is high and consumer prices rise.
He explained that the central bank’s thinking is that most of the inflationary pressure at the moment comes from the supply side: once companies and policymakers resolve outstanding supply problems, inflation is likely to rise. moderate.
“RBI remains fully aware of its responsibility to anchor inflation expectations,” the governor said, adding that the central bank “will ensure that inflation does not become uncontrollable. It will be addressed.”
When asked if the central bank can move away from its accommodating position at the October policy meeting, Das said it would depend on developments in the economic situation and the inflation scenario.