Greater confidence that inflation moderating in Q3...but risks remain: Das

We have to be very careful because there is every chance that inflation will simply bolt again, says Das

Reserve Bank of India (RBI) Governor Shaktikanta Das, along with Deputy Governors Michael Patra, M Rajeshwar Rao, Swaminathan J and T Rabi Sankar, responds to a range of questions during a post-policy media interaction. Edited excerpts:

Why shift to a neutral stance when inflation is expected to remain elevated?
 

Das: We have to be very careful because there is every chance that inflation will simply bolt again. We have to hold it on a tight leash and have greater confidence and alignment of inflation with the target... In the near term, inflation is remaining high, but thereafter there is moderation going into the third quarter...We now have greater confidence that inflation is moderating, but we are acutely aware that there are significant risks. So, the MPC considered it appropriate, the timing is appropriate to shift the stance to neutral.

Is this a pivot?

Das: Whether this is a pivot is for you to determine. A neutral stance provides us with flexibility to make decisions.

How does this relate to previous pauses in rate hikes?

Das: The fact that growth and inflation are well poised goes a long way to show that the monetary policy framework, Flexible Inflation Targeting Framework, is working and has proved its mettle.  Now, in such circumstances, when both inflation and growth are well balanced, there is no justification to continue with withdrawal of accommodation.  We have achieved what we wanted to achieve. Now, the future path is full of uncertainties, which I have listed out and these uncertainties and the risks cannot be underestimated. While we have, again I am repeating myself, we have given the projections, while we have greater confidence that inflation is moderating, but considering the significant risks that lie ahead of us and which are staring at us, it will be inappropriate to specifically talk in terms of timing of a rate cut. We have to be very careful about opening the gate of this stable.

How comfortable is India placed with foreign ownership of government bonds?

Patra: Foreign ownership is currently around 3 per cent, which is low. We will wait for these holdings to increase before making any decisions.

Recently there have been incidents where bank staffers committed suicide due to the targets they were unable to meet? You spoke about NBFCs, is there a similar action on banks?

Das: We have also seen the news about these incidents. We are doing very deep and effective supervision. We are engaging with the banks. On the basis of 2 or 3 incidents, it wouldn’t be right to generalise for the system. Investigative agencies are investigating the facts in these incidents. At the same time, I also want to say that, we regularly monitor how much the individual entities follow the fair practices code of Reserve Bank of India (RBI) which should be followed by both banks and NBFCs. When we find any shortcomings in following it by the regulated entities, we take it up with them. In such cases before, we have taken actions by imposing monetary penalties as well as by introducing business restrictions.

Has the outlook on crude oil changed? How does it affect inflation?

Patra: We've adjusted our crude oil assumption from $85 to $80. Looking ahead, the outlook for crude is softer due to anticipated increases in production and a shift toward renewables, which may lessen its impact on domestic inflation.