Speaking at the ‘High-Level Policy Conference of Central Banks from the Global South’ in Mumbai, he said: “It is not enough to be within the tolerance band and our job is not finished until we reach the target of 4% on a durable basis.”
Das also pointed out that macroeconomic stability is a shared responsibility between the central bank and the government.
These comments from the Governor come within days after commerce minister, Piyush Goyal, urged the central bank to cut rates. Finance minister, Nirmala Sitaraman, also alluded to ‘high interest rates’ in her recent public comments.
The RBI has kept policy rates at 6.5% since February 2023 but it changed the policy stance to ‘neutral’ from ‘withdrawal of accommodation’ giving hopes of a rate cut. Economists are now projecting a rate cut beginning next fiscal year following hawkish commentary from the Governor in recent weeks and a sharp rise in the headline inflation in October at 6.2% – well above the 2% upper end of the target band.
Referring to the challenge faced by the central bank during the pandemic- 2020-2023, he said that monetary policy worked on anchoring inflation expectations and containing demand-pull pressures while the government alleviated supply chain pressures and moderated cost-push inflation. “Thus, effective fiscal-monetary coordination was at the core of India’s success in the face of a series of adverse shocks. From this perspective, macroeconomic stability becomes a shared responsibility of both monetary and fiscal authorities.”The Governor, who is due to end his current term next month, will announce his last scheduled policy review on December 6. Reuters reported early this week that Das will get an extension, although no formal announcement has been made yet.
Stability Crucial
He said that price stability is crucial to sustain high growth: “Price stability is also important because high inflation is disproportionately burdensome on the poor.”
Making a strong pitch for durable inflation, he said, “A stable inflation or price stability is in the best interest of the people and the economy. It acts as a bedrock for sustained growth, enhances the purchasing power of the people and provides a stable environment for investment.”
While stating that price stability is “just as crucial as growth”, he said growth is a fundamental necessity for Global South countries, “but it cannot be and should not be at the cost of price stability.”
Global South countries, including India, need to step up investments in physical and social infrastructure and leverage technology to achieve higher growth, he said. All these require congenial public policies, including monetary policy, to be growth-supportive while maintaining balance with inflation.
He said, “The global economy has managed to hold its ground in the highly stormy weather of the last few years, clouds of uncertainties still loom on the horizon. Policymaking in this environment of heightened uncertainty is akin to driving a car through a foggy path ridden with speed bumps. These are conditions which will test the driver’s patience and skill.”
Content Source: economictimes.indiatimes.com