India’s central bank governor signaled he’s in no hurry to cut interest rates despite recent softening in
inflation
in the world’s fastest-growing major economy.
“Inflation has been brought within the target band of 2-6%, but our target is 4%,” governor
Shaktikanta Das
said on Friday at a forum organized by The Bretton Woods Committee in Singapore. “And over the last several monetary policy meetings, we have been reiterating the importance to stay the course and not get carried away by some dips in inflation.”
Official figures Thursday showed inflation remained below 4% for a second month in August, although that was largely due to statistical reasons.
The Reserve Bank of India has kept interest rates unchanged for more than 18 months already, with Das previously warning against any premature cut given worries over food costs.
Most economists don’t expect the RBI to ease borrowing costs until the final quarter of this year, predicting it will likely move only after the Federal Reserve pivots. However, some say there are signs that urban consumer demand is faltering and rates should be lowered to support economic growth.
Das said Friday that India’s potential growth rate was above 7.5%, “but taking a more conservative position, I would like to say that it’s around 7%.” India should be able to maintain that pace of growth in the next few years, he added.
Last quarter’s dip in growth to 6.7% was largely due to weaker government spending during the elections, he said. “All the other drivers of growth, whether it is consumption, investment, or on the supply side, like agriculture, industry or services, all of them have recorded 7%-plus growth in the first quarter” of the fiscal year, he added.
The governor also urged global monetary authorities to remain prudent and agile as inflation continues to pose a risk even as it has stabilized in many places.
Emerging markets including India can capitalize on softening inflation, Das said, as their currencies recover against the US dollar amid the impending monetary easing by the Fed. The governor added that the RBI doesn’t draw a line in the sand for the rupee and that authorities only intervene in the foreign-exchange markets to curb volatility.
