Kautilya Economic Conclave 2023: Interest Rate To Remain High For Now, Says RBI Governor

Shaktikanta Das said that the monetary policy must remain actively disinflationary to ensure that the decline in domestic inflation from its peak of 7.44 per cent in July continues smoothly

Shaktikanta Das said the global economy is now facing a triad of challenges, inflation, slowing growth, and risks to financial stability.

Source : PTI

Shaktikanta Das, Reserve Bank of India (RBI) governor, on Friday said interest rate will remain elevated at the moment and only time will tell for how long it remains high. Das, who was speaking at Kautilya Economic Conclave 2023, also said that the monetary policy must remain actively disinflationary to ensure that the decline in domestic inflation from its peak of 7.44 per cent in July continues smoothly. He emphasised that the monetary policy is always challenging and there is no room for complacency.

In the wake of the ongoing geopolitical crisis, major central banks across the world have raised their key policy rates to deal with high inflation. The central bank too had raised the short-term benchmark lending rate (repo) cumulatively by 250 basis points since May 2022. However, it has paused its rate hike spree in February this year and retained the repo rate at 6.5 per cent.

Retail inflation declined to a three-month low of 5.02 per cent annually in September on account of moderation in vegetables and fuel prices, and was back within the RBI's comfort zone. The inflation based on Consumer Price Index (CPI) was 6.83 per cent in August and 7.41 per cent in September 2022. In July, inflation touched a peak of 7.44 per cent.

The RBI has raised the key policy rate (repo) by 250 basis points since May 2022 to tame inflation. However, it pressed the pause button on rate hike in February this year. "We have maintained a pause on policy rate. So far 250 basis points rate hike is still working through the financial system. We have also appropriately fine-tuned our communication to ensure a successful transmission of the interest rate hikes," the governor said. He said expansion of digital payments have made monetary policy transmission more quick and effective.

In his speech, Das stated that the monetary policy is always challenging and there is no room for complacency. He said the global economy is now facing a triad of challenges, inflation, slowing growth, and risks to financial stability. "First, no moderation in inflation which is getting interrupted by recurring and overlapping shocks. Second, slowing growth and that too with fresh and enhanced obstacles. And third, lurking risks of financial stability."

With regard to the domestic financial sector, he said Indian banks would be able to maintain minimum capital requirements even during stress situation. India is poised to become the new engine of global growth, Das said, and added the country is expected to clock 6.5 per cent GDP growth rate in the current fiscal ending March 2024.