Low inflation sustainable this time, says R Gandhi

Says expectations of high inflation continue to remain at bay

Reserve Bank of India (RBI) Deputy Governor R Gandhi said the low levels of inflation that the country is experiencing this time around is sustainable.

"Our experience of inflation was in a high single-digit to teens and hence inflationary expectation were very well entrenched. Though we did experience low inflation levels in some period, we could not sustain it. Yet another time, we are now experiencing low levels of inflation and it is amply clear that this time around we will be able to sustain it for years to come," said Gandhi.

In July, the retail inflation fell significantly to 3.78 per cent whereas the wholesale inflation for July fell for the ninth straight month to a historic low of (-)4.05 per cent.

Gandhi also added the current monetary policy framework agreement with the government prescribes that the objective of the monetary policy will be to maintain consumer inflation between four-six per cent and as a result expectations of high inflations continue to remain at bay.

However, he cautioned investors that the nominal interest rate they receive would be low compared to interest rate one earns during high inflation period. "Actually, the low nominal income will now command and fetch better goods and services as the real value of savings and income have been preserved. As business and confidence level will be higher and better during low inflation, savers will have higher appetite for risk-taking... This will mean less reliance on pure fixed rate income," said Gandhi.

Meanwhile, on the issue of giving out licences for niche banks, he said a stringent procedure has been followed. Recently, RBI granted payments banks licence to 11 players out of 41 players that had applied. For this, the regulator had put in place a five-step process where the players were assessed by both internal and external committees.

"There had to be a highest degree of assurance about who will be able to keep the public deposits safely...We are in the final stages of issuing licence for small finance banks also and we will be extremely cautious before issuing these licences," added Gandhi.

RBI had received 72 applications for small finance banks and the licences are set to be issued this month.