INDIA’S central bank remains “extra vigilant” on inflation and needs to see the rate easing to 4 per cent on a sustained basis, governor Shaktikanta Das said, signalling interest rates may remain higher for longer.

Monetary policy must remain actively focused on curbing prices “to ensure that the ongoing disinflation process progresses smoothly,” Das said in a speech hosted by the Institute of Economic Growth in New Delhi on Friday (Oct 20).

The central bank kept its benchmark interest rate unchanged for the fourth straight time on Oct 6 and signalled policy will remain relatively tight unless inflation settles durably around 4 per cent, the midpoint of the RBI’s 2 per cent-6 per cent target band. Economists surveyed by Bloomberg expect inflation to average 5.4 per cent in the current fiscal year that ends in March and 4.6 per cent in the year after that.

The rupee gained on Friday after Das’s hawkish comments, rising 0.2 per cent to 83.08 against the US dollar, making it Asia’s second-best performer on the day.

Commenting on the currency, Das said recent pressure on the rupee was mainly due to a stronger US dollar, and the central bank intervenes in the market regularly only to tackle excess volatility.

The governor said there were encouraging signs from the RBI’s September round of surveys showing further progress in anchoring inflation expectations. However, the outlook on food inflation “is beset with uncertainties,” he said.

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Amid a slowing global economy, which also faces inflationary risks, economic activity in India “exhibits resilience on the back of strong domestic demand,” he said.

Das reiterated the RBI’s growth forecast of 6.5 per cent in the current financial year, saying India is “poised to become the new growth engine of the world.” The International Monetary Fund last raised India’s growth forecast for the period to 6.3 per cent from 6.1 per cent previously. BLOOMBERG