Even as India’s real GDP looks poised for growth of 6.5 per cent in both 2023-24 and 2024-25, making it one of the fastest growing large economies in the world, Reserve Bank of India Governor Shaktikanta Das on Wednesday signalled that the monetary policy would remain watchful and actively disinflationary while supporting growth.
Over the last 1.5 years, the monetary policy actions of the RBI have focused on prioritising inflation ahead of growth, narrowing the Liquidity Adjustment Facility (LAF) corridor, increasing the policy repo rate by 250 bps, draining out excess liquidity, Das emphasised, addressing a banking summit ‘FIBAC 2023’ jointly organised by FICCI and Indian Bank Association in Mumbai.
“These, together with supply side measures by the Government, have facilitated significant softening of headline inflation to 4.9 per cent in October 2023,” Das told the gathering. “The moderation in core inflation is noteworthy. We are completely focused on the 4 per cent target and we maintain Arjuna’s eye on the inflation target,” he stressed.
Das outlined the need for the RBI’s policy stance and actions in the context of geopolitical conflicts, geo-economic fragmentations, volatile commodity prices, uncertainty in trajectory of monetary policies and their macro-financial implications, increasing frequency and ferocity of climate shocks, which present, according to the RBI Governor, “a deadly mix of challenges putting policymakers to test”.
These actions over the past one and a half years have not engendered any financial stability risks as witnessed in some advanced economies in the early part of 2023, Das observed, handing out credit to the regulatory requirements prescribed for banks to manage their interest rate risks which acted as safeguards for future stress that may arise when the upturn of the interest rate cycle takes place.
Highlighting the prospects of the Indian economy, Das emphasised on the strong rebound from the COVID induced contraction of 5.8 per cent in 2020-21 to a growth of 9.1 per cent in 2021-22 and 7.2 per cent in 2022-23, placing India as the third largest economy in the world in terms of purchasing power parity (PPP).