RBI Governor Shaktikanta Das has said that India’s central bank is ‘not behind the curve’ with regard to raising interest rates. reserve Bank of IndiaThat, he said, is in line with the realities of growth and inflation. RBI Governor’s remarks come at a time when inflation month high India Crude oil and food prices have risen sharply in the past few months due to several reasons, including Russia Ukraine war.
“I do not agree with any of the assumptions or any description that RBI has fallen behind the curve. We have lived up to the requirements of our times. Just imagine if we had started raising rates early, what would have happened to the growth? Shaktikanta Das said at an event related to BFSI in Mumbai on Friday, June 17.
“Could this (initial rate hike) have stopped the rise in inflation caused by the war? No, inflation would still have been at 7 per cent,” Das said at the event.
“A high inflation tolerance was a necessity during the pandemic, otherwise, the economy and financial markets would have suffered huge losses and India would have taken years to come back,” he said. To deal with the macroeconomic situation, the RBI had kept its repo rates at a historically low level of 4 per cent for two years during the time of the pandemic. At that time, the central bank also infused liquidity into the financial sector.
However, the RBI-led Monetary Policy Committee is now slowly backing away from its liberal stance. The MPC raised the RBI repo rates by 90 basis points from 4 per cent to 4.90 per cent in the months of May and June. In May, the RBI held an off-cycle MPC meeting to hike repo rates by 40 basis points, and later raised it by 50 basis points during its scheduled meeting earlier this month.
This came as inflation in India posed a challenge to the central bank and hit an almost eight-year high. India’s retail inflation stood at 7.04 per cent in May, from an all-time high of 7.79 per cent in April. However, retail inflation has remained at the RBI’s medium-term target of 4 per cent for 32 consecutive months. On the other hand, retail inflation has remained above the upper limit of 6 per cent for the last five months.
Das said on that day, “I think it was the Monetary Policy Committee’s decision to tolerate higher inflation which, of course, along with other factors contributed to the revival of the economy and take it to where we are today.” ” “India is in a better position than many other economies to face the consequences of the war.”
Das had said that day that the shock of the Russia-Ukraine war prompted the RBI to deal with the matter in a calibrated manner and the priority was to stay close to the inflation target. The governor said the RBI is also targeting a “soft landing” of liquidity withdrawals.
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