Stable Inflation Key To Sustained Growth: RBI Governor Shaktikanta Das

Das noted that price stability is equally important as growth. It allows economic agents to plan confidently, reduces uncertainty and inflation risk premiums, and encourages savings and investment

Reserve Bank of India (RBI) Governor Shaktikanta Das stressed on Thursday that stable inflation is fundamental to sustained growth, as it supports purchasing power and creates a stable environment for investment. While speaking at the High-Level Policy Conference of Central Banks in Mumbai, Das said, “It acts as a bedrock for sustained growth, enhances the purchasing power of the people and provides a stable environment for investment.”

The governor noted that price stability is equally important as growth. It allows economic agents to plan confidently, reduces uncertainty and inflation risk premiums, and encourages savings and investment. “Thus, in the long run, price stability supports sustained high growth. Price stability is also important because high inflation is disproportionately burdensome on the poor,” Das added.

Das also highlighted that the strong growth of the Indian economy has given the RBI the flexibility to prioritise inflation control, aiming for a sustainable reduction towards the target of 4 per cent. He stressed that stable inflation is in the public's and the economy's best interest.

The governor’s remarks come as headline inflation in October surpassed the upper tolerance limit of the Monetary Policy Committee (MPC). CPI inflation stood at 6.2 per cent in October, up from 5.5 per cent in September. During the October MPC meeting, the panel kept policy rates unchanged but shifted its stance to "neutral," fueling speculation of a potential rate cut in December. 

However, given the persistent inflation in September and October, experts have largely ruled out a rate cut for December. There is also uncertainty about whether the RBI will cut rates in February, with many expecting any rate reductions to begin in April.

The RBI's November bulletin remained optimistic about growth, noting that private consumption has become the key driver of domestic demand. Promising rabi crop prospects are expected to boost farm incomes and rural demand.

The RBI’s state of the economy report has warned that rising prices if left unchecked, could undermine the prospects of the real economy. It also cautioned about the spillover effect of rising food prices on headline inflation and expressed concern over the recent uptick in core inflation, calling it a “worry.”

Meanwhile, Governor Das stated on Thursday that the RBI has actively used communication to manage expectations. He explained that when necessary, the central bank combined rate and liquidity operations with appropriate forward guidance to enhance the effectiveness of its policies.