RBI’s Active Disinflation: Monetary Policy in Focus-Reserve Bank Governor Shaktikanta Das emphasizes the need for active disinflationary monetary policy to maintain inflation’s decline and address global economic challenges such as slowing growth and financial stability risks.
Introduction
In a recent address at the Kautilya Economic Conclave 2023, Reserve Bank Governor Shaktikanta Das emphasized the need for a proactive approach to maintain a disinflationary monetary policy. The key objective, he stressed, is to ensure a smooth and continuous decline in inflation, which had surged to 7.44 percent in July.
The Pursuit of Disinflationary Monetary Policy
Governor Shaktikanta Das underlined the significance of actively pursuing a disinflationary monetary policy. This strategy is essential to sustain the ongoing decrease in inflation rates, which is crucial for economic stability.
The Symbiosis of Price Stability and Financial Stability
He highlighted the symbiotic relationship between price stability and financial stability. It has the unwavering mission of the Reserve Bank of India (RBI) to efficiently manage both aspects, recognizing their interdependence.
Decline in Inflation Rates: RBI’s Active Disinflation: Monetary Policy
Governor Das acknowledged the recent drop in retail inflation, which hit a three-month low of 5.02 percent annually in September. This decline can be attributed to reductions in vegetable and fuel prices, bringing inflation back within the RBI’s comfort zone.
RBI’s Endeavors in Managing Inflation
In August, the Consumer Price Index (CPI)-based inflation stood at 6.83 percent, which decreased to 7.41 percent in September 2022. In July, inflation had reached its zenith at 7.44 percent. The RBI had responded by raising the repo rate by 250 basis points since May 2022 in a bid to control inflation. Nevertheless, the RBI opted for a rate hike hiatus in February of the current year.
Transmission of Monetary Policy: RBI’s Active Disinflation: Monetary Policy
Governor Das elaborated on the importance of successfully transmitting interest rate hikes and mentioned that the RBI has taken appropriate measures to achieve this. The expansion of digital payment systems has significantly expedited and enhanced the effectiveness of monetary policy transmission.
The Ongoing Challenge of Monetary Policy
Governor Das acknowledged that managing monetary policy is an ever-present challenge that allows no room for complacency. The dynamic nature of the financial landscape requires continuous adaptation and vigilance.
Global Economic Challenges
Governor Das also touched upon the current global economic landscape, which faces a triad of challenges – unrelenting inflation, decelerating growth, and looming threats to financial stability. These challenges further compounded by recurring and overlapping shocks.
Strength of Indian Banks: RBI’s Active Disinflation
Addressing the domestic financial sector, Governor Das expressed confidence that Indian banks are well-equipped to maintain minimum capital requirements even during stressful situations.
India’s Growth Potential
Governor Das concluded by expressing optimism about India’s role as the new engine of global growth. He projected a 6.5 percent GDP growth rate for India in the current fiscal year, ending in March 2024.
Conclusion: RBI’s Active Disinflation: Monetary Policy
Governor Shaktikanta Das’ address underscores the critical role of monetary policy in maintaining a disinflationary stance. As India grapples with domestic and global economic challenges, the RBI remains committed to achieving price stability and financial stability. With its robust stance and strategies, India poised to play a significant role in the global economy, buoyed by steady growth and prudent financial management.
Disclaimer
This article has been created on the basis of internal data, information available publicly, and other reliable sources to be believed. The article may also include information which are the personal views/opinions of the authors. The information includes in this article is for general, educational, and awareness purposes only and is not a full disclosure of every material fact.
All the information on this website – World Virtual CFO – is published in good faith and for general information purposes only. World Virtual CFO does not make any warranties about the completeness, reliability, and accuracy of this information. These are my views for only information purposes. Any action you take upon the information you find on this website (World Virtual CFO), is strictly at your own risk. World Virtual CFO will not be liable for any losses and/or damages in connection with using our website. For details please refer to our disclaimer page.
1 response