Reserve Bank of India (RBI) Governor Shaktikanta Das thinks policymaking in the current economic climate has become extraordinarily complex. Das said the RBI has maintained a pause on policy rates in 2023 so far and that the 200 basis points hikes are still working through the system. He was addressing the Kautilya Economic Conclave 2023 on Friday, October 20.

Share Market Live

NSE

"I think interest rates will remain high. How long they will remain high only the evolving world situation can tell," he said.

He mentioned that though macro stress tests reveal India's scheduled commercial banks will be able to comply with regulatory cap levels even under serious scenarios, there is a need to stay vigilant as "it’s during good times that vulnerabilities may creep in".

Das highlighted insights into the challenges and intricacies of managing the country's monetary policy and ensuring financial stability.

Maintaining a Pause on Policy Rates

The RBI governor said the RBI has paused policy rates in 2023 so far. He pointed out that the 200 basis point hikes implemented in recent times are still working their way through the system.

Global Economic Headwinds

Governor Das acknowledged the global headwinds, including a slowdown in global growth and stubborn inflation. Despite these challenges, he noted that the Indian economy has exhibited remarkable resilience.

Inflation Dynamics and Food Prices

Highlighting the RBI's vigilance on inflation dynamics, the RBI governor expressed concerns regarding the uncertainties surrounding food inflation. He highlighted the need for caution in this regard. "We remain extra vigilant on inflation dynamics; outlook on food inflation is beset with uncertainties," he said.

Global Economic Challenges

Governor Das outlined a "triad of challenges" facing the global economy, including slowing growth, risks to financial stability, and a slower pace of inflation easing. These challenges have made the task of central banks even more complex.

Challenges in Monetary Policy

Monetary policy, according to Das, has always been a challenging task. He stressed that there can be no room for complacency at any point in time. The central bank faces a delicate balance between promoting growth and maintaining financial stability, with the potential for conflicts between these objectives.

Financial Markets Sensitivity

He also noted that financial markets have become highly sensitive to even the "slightest piece of information". The reaction of financial markets to policy changes and economic data has become a crucial aspect of policy-making.

Maintaining Financial Stability

In light of these challenges, Das emphasised that central banks, including the RBI, have a larger responsibility to maintain financial stability. However, he admitted that quantifying financial stability remains an intricate task.

Resilience of Banking Sector

He mentioned that macro stress tests indicate that Scheduled Commercial Banks (SCBs) are expected to comply with regulatory capital levels even under severe economic scenarios.

He emphasised the importance of identifying vulnerabilities during good times to prevent future crises. "NBFCs (non-banking financial companies) must remain vigilant... roofs need to be built, walls need to be fixed," he warned.

(Edited by : Amrita)

First Published:Oct 20, 2023 11:43 AM IST