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RBI not lagging behind in interest rate hike, says Governor Shaktikanta Das

RBI Governor Shaktikanta Das said India’s central bank had not “fallen behind” on raising interest rates. The RBI, he said, is in tune with the realities of growth and inflation. The RBI Governor’s comments came at a time when inflation is at its highest in months in India, with crude oil and food prices rising sharply in recent months for many reasons including the war between Russia and Ukraine.

“I would not agree with any perception or any sort of description that the RBI has fallen behind. We have been in step with the demands of our time. Imagine if we had started raising rates early, what would have happened to the growth? This is all hindsight, Shaktikanta Das said at a BFSI-related event in Mumbai on June 17, Friday.

“Could this (the early rate hike) have prevented the war-induced spike in inflation? No. Inflation would have always been 7%. Das said at the event.

“Tolerance of higher inflation during the pandemic was a necessity, otherwise the damage to the economy and financial markets would have been enormous and it would have taken India years to recover,” he said. added. The RBI had kept its repo rates at a historic low of 4% during the pandemic period for two years to cope with the macroeconomic situation. At that time, the central bank also injected liquidity into the financial sector.

However, the RBI-led monetary policy committee is slowly backing away from its dovish stance. The MPC raised RBI repo rates by 90 basis points from 4% to 4.90% during May and June. In May, the RBI convened an off-cycle MPC meeting to raise repo rates by 40 basis points, then raised them by 50 basis points at its scheduled meeting earlier this month.

This came after inflation in India posed a challenge to the central bank and hit an almost eight-year high. Retail price inflation in India stood at 7.04% in May, after peaking at 7.79% in April. However, retail inflation has been on the RBI’s medium-term target of 4% for 32 consecutive months. Over the past five months, on the other hand, retail price inflation has exceeded the upper ceiling of 6%.

“I think it was the monetary policy committee’s decision to tolerate higher inflation, certainly, among other factors, that helped revive the economy and get it to where we are today. “, Das said that day. “India is far better placed than many other economies to deal with the fallout from the war.”

The shock of the Russian-Ukrainian war prompted the RBI to deal with the issue in a calibrated manner and the priority is to stay closer to the inflation target, Das said on the day. The RBI is also aiming for a “soft landing” in the withdrawal of cash, the governor said.

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