RBI governor says rate cut at this stage ‘very, very risky’
There are “significant risks” to the outlook, says governor Shaktikanta Das
INDIA’S central bank governor Shaktikanta Das said an interest rate cut at this stage would be “very, very risky” and he’s in no hurry to join the wave of easing by global policymakers.
While inflation is expected to moderate, there are “significant risks” to the outlook, Das told Bloomberg News Deputy Editor-in-Chief Reto Gregori at the India Credit Forum in Mumbai on Friday (Oct 18). He added that the central bank wasn’t “behind the curve,” and it needs to remain vigilant about price pressures.
The Reserve Bank of India has kept its key interest rate unchanged for almost two years, although signalled last week it may be preparing to ease after changing its policy stance to neutral. That comes as central banks around the world follow the US Federal Reserve in reducing interest rates, with Thailand the latest to surprise with a cut this week.
Responding to a question about global central bank easing, Das said “we will not miss the party, we don’t want to join any party.”
Indian bonds extended losses after his comments, with the 10-year yields rising as much as 4 basis points to 6.82 per cent.
While most economists had predicted the RBI would begin lowering rates in December, this week’s hotter-than-expected inflation data prompted economists to push out their rate-cut forecasts to next year.
“A rate cut at this stage can be very premature and can be very, very risky,” Das, 67, said. “When your inflation is 5.5 per cent and your next print is also expected to be high, you can’t be cutting rate at that stage.”
October’s inflation rate will remain high, the governor said, and will then likely moderate in November.
Das has repeatedly said the RBI wants to see inflation settling around the 4 per cent target level on a durable basis before considering a cut. Deputy governor Michael Patra has indicated that won’t happen until the fiscal year that starts April 1.
“We would rather like to wait and watch,” he said. “If we want to join the party we want to do it on a durable basis. When we have confidence, inflation figure is durably aligned with our target 4 per cent that may be a situation where we can think of” easing, he added.
Das’s comments on Friday were his first public statements on inflation since the worse-than-expected data, and come against the backdrop of recent evidence showing India’s world-beating growth is starting to taper off and company profits are weakening.
The RBI is more bullish about growth prospects compared with the market consensus and even the government. Das last week kept the central bank’s forecast for the current fiscal year unchanged at 7.2 per cent, while the government’s own projection is a more subdued 6.5 per cent-7 per cent.
On the currency, the governor reiterated the RBI is not trying to manage the exchange rate and the rupee has been depreciating in response to the overall movement of the dollar.
The RBI is building its foreign exchange reserves as a “safety net” to protect against any instability from volatile capital flows, he said. The central bank has no specific target for building reserves, he added.
India’s foreign exchange reserves recently crossed the US$700 billion mark, making it the fourth-largest in the world, as the RBI soaks up dollar inflows to keep the rupee stable. Das has previously said the RBI intervenes in the foreign exchange markets to manage volatility and not to protect a specific level for the currency. BLOOMBERG
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
