MUMBAI: Amidst rising signs of the economy losing steam, the Reserve Bank continues to exude confidence saying despite the challenging global environment, our economy continues to remain strong led by robust macroeconomic fundamentals, a stable financial system and a resilient external sector.
“Amidst the rising headwinds and contradictions, our economy is sailing through smoothly powered by buffers like strong macroeconomic fundamentals, stable financial system and resilient external sector,” governor Shaktikanta Das said here Thursday.
Delivering his keynote address at a CNBC TV18 event, he said RBI’s endeavour has been to “seize every opportunity to further strengthen the country’s fundamentals” through prudent and proactive policy approaches. The focus has been to maintain financial stability, which breeds growth and prosperity, he said.
His optimism, a repeat in the past 10 days, comes amidst a rising number of indicators showing that the growth engine is losing steam. While corporate profitability in the September quarter is at the lowest in two years, revenue growth for many key sectors are lowest in many quarters. Capping the worries are the lagging demand from the urban markets, while rural has been catching up.
Also, October inflation has breached the upper tolerance level of the RBI at 6.2 per cent driven by soaring food prices. The September printed in at 5.65 – both expected but much above the forecast and the latest number has completely ruled out a cut in the next month’s review.
On the latest consumer price numbers—the highest in the past 14 months--Das expects prices to moderate despite periodic humps. “Inflation is expected to moderate despite periodic humps,” the governor said.
At the same event, Commerce Minister Piyush Goyal said, "I certainly believe the central bank should cut interest rates. Growth needs a further impetus. It’s absolutely a flawed theory to consider food inflation while deciding interest rates.” He was soon to put a caveat that these were his personal views and not those of the government.
On the minister’s call when asked the governor said, "the next monetary policy is coming up in the first week of December. I would like to reserve my comments for that.”
The governor, whose six-year term comes to an end on December 12, said the domestic economy is “sailing through smoothly,” even as global growth faces accelerating risks ranging from geopolitical tensions to climate change.
He said the global economy was hit “very hard” by multiple shocks, but synchronised policy action by central banks helped to ease the impact. Even so, the “risk of inflation coming back and growth slowing down do remain,” he said.
The RBI has stuck to its economic growth projection of 7.2 per cent for the current fiscal year.
On the rupee, which has plumbed to 84.41, Das said the central bank does not target a level or band of the rupee, and that the market sets the exchange rates, and RBI only acts to curb undue volatility.
But he said it is important to note that the exchange is a barometer of the economy's strength. But ruled out that the RBI is setting a level for the rupee, saying the RBI doesn’t have any level, speaking at a time when the rupee has hit new lows prompting the central bank to intervene.
The currency was stable in the last year and a half but came under pressure – first from the US Fed’s rate cut in September and then when Donald Trump won the US presidential election last week. The rupee is trading at 84.40 against the dollar, an all-time low.
“Our exchange rate policy is well articulated and has remained consistent over the years. Our exchange rate regime is market-determined and the Reserve Bank does not target any level or band of the exchange rate,” he said.
“The forex interventions are carried out to ensure an orderly movement of the exchange rate and to curb undue volatility, anchor market expectations and ensure overall financial stability. “It is important to note that the exchange is a barometer of the economy’s strength,” he added.
Stating that the relative stability of the rupee despite challenging conditions is a result of the country’s strong macroeconomic fundamentals, he said, “if the rupee remained relatively stable despite external shocks including the largest and steepest tightening by the US Fed in 2022 and 2023, it speaks volumes about the sea change in our macro fundamentals from the days of the taper tantrum.”
Stating that the RBI’s mandate spans multiple dimensions and its consistent effort is to take a holistic view of stability, which encompasses price stability, financial stability and sustained growth, Das said the regulator deploys multiple policy instruments to serve these objectives.
Further Das said since the financial system will continue to face newer challenges in the future, there is a continuing need for the financial sector entities to strengthen their levels and quality of capital, while further sharpening the risk management standards, he stated.
Towards this, he said, the Reserve Bank is now working on issues like the adoption of the revised Basel III standards in a phased manner, issuance of guidelines for expected credit loss, liquidity coverage ratio and prudent framework for financing of project loans.