Inflation is moderating and moving steadily towards the 4% target: RBI Governor Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday said retail inflation is slowly moderating and moving steadily towards the 4 per cent target.

During a fireside chat at the World Economic Forum in Davos, Das stated that core inflation has started to decline, providing confidence that monetary policy is working, while noting that maintaining financial stability despite multiple headwinds is the biggest achievement in recent has been five years. year.

“The latest inflation print for December, released last week, shows (CPI) inflation at 5.7 percent. There’s a lot of basic effect in there. But it is gradually becoming a kind of moderation. It has started moderating. It is moving steadily towards the 4 percent target,” Das said.

Indian law has set the RBI’s inflation target at 4 percent, with a variation of 2 percent on either side.

After raising the policy rate by 250 basis points to 6.5 percent between May 2022 and February 2023, the central bank paused during the next five policy review meetings. The next monetary policy review is scheduled for February.

“Inflation is something that is difficult to predict because it is subject to so many international developments and weather conditions… But if you look at core inflation, which is actually a measure of the efficacy, the effectiveness of monetary policy, the core inflation, which is at At one point, the core part of inflation, i.e. non-food and non-oil, had reached 6.1 percent and had been stuck at 6 percent for quite some time, has been steadily declining. According to the latest inflation event, core inflation is at 3.8 percent. So it gives a positive feeling and confidence that monetary policy is working,” he added.

He said food inflation could be volatile and would be at the top of the central bank’s agenda. Overall inflation was 5.69 percent in December, lower than economists’ expectations of 5.9 percent.

The Governor further said that bringing financial stability to India is the biggest achievement of the central bank in the last five years. Das was appointed governor of India’s central bank for a three-year term in 2018, and his term was extended for another three years in 2021.

He said the current state of governance within the banks has undergone a complete transformation, due to the innovative financial architecture implemented to govern both private and public sector banks. This reform extends beyond traditional banking institutions to include non-bank finance companies, and is intricately woven into the regulatory fabric of digital lending by issuing comprehensive guidelines.

“The entire governance system in banks today has been completely transformed because of the new financial architecture that we have put in place regarding the governance of both private and public sector banks. For the regulatory architecture around NBFCs and digital lending, we have prepared guidelines for digital lending. So I think all these are the building blocks and they provide the required foundation for the belief that India’s growth momentum will be sustained in the future. And when I say that I see sustainable signs of India’s growth momentum in the banking sector, that is based on a lot of internal research and analysis,” he said.

Das expressed reservations about the speculative nature of cryptocurrencies and their potential risks to financial stability, citing concerns related to money laundering and terrorist financing. In response to the comparison of cryptocurrencies with the Tulip Mania, the governor expressed his skepticism about the current trajectory of cryptocurrencies. The lack of underlying assets and potential to become part of the payment system raised concerns. Despite recognizing the potential of blockchain technology, he warned against the speculative nature of cryptocurrencies.

The governor debunked claims that some central banks had made a nod to having 2 percent of their reserves in Bitcoin. He stated that he was not aware of any major or emerging market economy that had taken such a decision at the bimonthly meetings of central bank governors. He underlined the importance of independently assessing risks and adopting strategies tailored to the circumstances of each country.

Das said the current scenario provides an opportune time to attract foreign investments. The resilience shown in difficult times has generated significant interest from external investors. It marks a growing recognition of India’s stability and financial robustness, making it a favorable destination for those seeking long-term investment opportunities.

First print: January 17, 2024 | 12:21 pm IST