New Delhi, Aug 20: A decision on reducing the key policy repo rate will depend on keeping inflation in check and the fall in food and vegetable prices in July was not enough to cut rates, Reserve Bank of India Governor Shaktikanta Das told NDTV in an exclusive interview on Tuesday.
“Any reduction in the policy rate will also depend on future data, with inflation being the biggest influencer,” the RBI chief told NDTV Editor-in-Chief Sanjay Pugalia. “What we seek is a durable alignment of inflation to target, meaning around 4 per cent. We need to have confidence that it (inflation) will stay around 4 per cent. We have to be patient. We need to cover more distance,” he said.
The central bank Governor said any adverse impact on economic growth due to not reducing the policy rate is “minimal and negligible”. “Growth sacrifice is minimal, almost negligible. We are still growing 7.2 per cent, the fastest in the world. Growth remains intact, stable, resilient, but we need to reduce inflation,” he said.
He said if food prices are very high, the common people will not find any rate cut credible. “It is very important to keep inflation in mind while taking any major decision… Whether to cut the policy rate depends on future data. For now, we are confident inflation is reducing, and we are hoping it will be around 4 per cent.
For now, we see it at 4.5 per cent,” Das said. The central bank chief denied the RBI ever said it expected inflation to go below 4 per cent. “We never said inflation would go below 4 per cent if you see the MPC meeting details carefully,” Das said, referring to the Monetary Policy Committee which takes the decision on fixing India’s policy rate.
The RBI on August 8 kept the key policy repo rate unchanged at 6.5 per cent for a ninth consecutive meeting as it continues to maintain a balance between accelerating economic growth and keeping inflation under control.
The RBI Governor said the Monetary Policy Committee has decided by a 4:2 majority to keep the repo rate unchanged as inflation has risen above 5 per cent and is still above the targeted level of 4 per cent. The RBI had last changed rates in February 2023, when the repo rate was hiked to 6.5 per cent. The RBI raised rates by 2.5 per cent between May 2022 and February 2023 after which they have been kept on hold to support economic growth despite inflationary pressures in the past.
The repo rate is the interest rate at which the RBI gives short-term loans to banks to enable them to meet their liquidity requirements. This, in turn, has an impact on the cost of loans that banks extend to corporates and consumers.
A cut in interest rates results in more investment and consumption expenditure which spurs economic growth. However, the increased expenditure also pushes up the inflation rate as the aggregate demand for goods and services goes up.
IANS