In a recent statement, Reserve Bank of India (RBI) Governor Shaktikanta Das has firmly stated that the central bank will not lower interest rates at this time. He explained that with retail inflation still high and geopolitical tensions affecting the global economy, reducing the repo rate could be too risky.
Speaking at the India Credit Forum hosted by Bloomberg, Das emphasized that current economic conditions, including inflationary pressures and ongoing geopolitical issues in West Asia and Europe, are not favorable for a rate cut.
Why RBI Won’t Cut Interest Rates Now
The RBI Governor explained that inflation is a key concern. “When your inflation is at 5.5% and expected to remain elevated, cutting interest rates would be risky and untimely,” Das remarked. This decision was also backed by the RBI’s earlier announcement in the October Monetary Policy Committee (MPC) meeting, where the repo rate was kept steady at 6.5%.
According to the Governor, the central bank’s stance on monetary policy has shifted to “neutral,” indicating that future steps will depend on how inflation and other economic indicators evolve in the coming months. The next bi-monthly monetary policy update is scheduled for December 6, 2024.
Inflation and Global Factors Are Major Concerns
Inflation remains the primary reason behind RBI’s cautious stance. Retail inflation in September was high, and upcoming data is expected to reflect a similar trend. Governor Das made it clear that the central bank will only consider policy changes based on future data and how the economic scenario unfolds.
Moreover, geopolitical tensions in Europe and West Asia have also contributed to the central bank’s decision to avoid any risks with interest rates. These uncertainties make it crucial for RBI to maintain a careful approach toward the country’s monetary policy.
RBI’s Role Beyond Regulation
Shaktikanta Das also commented on RBI’s role in regulating the financial sector. Recently, the RBI took regulatory action against Navi Finserv and three other non-banking financial companies (NBFCs), halting their loan operations. However, Das clarified that the central bank is not acting like a police force but instead ensures a balanced and healthy financial market.
“We don’t work like the police,” he said, explaining that RBI is constantly monitoring the financial markets and takes necessary action when required.
Optimism for Growth, Inflation to Ease
Despite the current challenges, the RBI Governor remains optimistic about India’s growth story. “This is the era of India,” he stated, pointing out that inflation, while still elevated, is largely within the target range and is expected to decrease over time.
Balancing economic growth and inflation control is crucial, and the RBI is committed to closely monitoring both aspects. With this balanced approach, the central bank will continue to shape India’s monetary policy based on the evolving economic conditions.
