RBI Governor: High interest rates to stay amid global inflation troubles

Reserve Bank of India (RBI) Governor Shaktikanta Das has emphasized the need for an actively disinflationary monetary policy to ensure a smooth decline in inflation.

"Interest rate will remain high at the moment, (for) how long, only time will tell," the governor said at Kautilya Economic Conclave 2023.

He stated that price stability and financial stability complement each other and it has been an endeavour at RBI to manage both efficiently. The Governor also highlighted the challenges of global inflation, slowing growth, and risks to financial stability.

Governor Das said the RBI has maintained a pause on policy rates in 2023 so far and that the 200 basis points hikes are still working through the system.

The RBI’s inflation target for FY24 is 5.4%, with Q2 at 6.4%, Q3 at 5.6%, and Q4 at 5.2%. The Governor expressed confidence in India’s ability to maintain minimum capital requirements.

Challenges in monetary policy

Das stressed the perpetual challenges in crafting effective monetary policies. He emphasized the absence of room for complacency, highlighting the delicate balance between promoting growth and ensuring financial stability, often leading to conflicts between these objectives.

Financial markets

Governor Das underscored the heightened sensitivity of financial markets to even the slightest information. The reaction of these markets to policy alterations and economic data has become a pivotal aspect of policy-making, demanding careful consideration and swift response.

Financial stability

In the face of these challenges, Das emphasized the expanded responsibility of central banks, including the RBI, in maintaining financial stability. However, he acknowledged the complexity of quantifying financial stability, posing a challenge to effective policy implementation.

Resilience of the banking sector

Governor Das highlighted the results of macro stress tests, indicating that Scheduled Commercial Banks (SCBs) are expected to meet regulatory capital levels even under severe economic conditions.

He stressed the significance of identifying vulnerabilities during favourable economic periods to avert potential crises, especially emphasizing the vigilance of non-banking financial companies (NBFCs) in their preparations for the future.

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