“Inflation is moderating, with certain risks about which we have to be very vigilant,” Das said at an event organised by Bloomberg on Friday. “Therefore, a rate cut at this stage will be very premature and can be very, very risky. When your inflation is 5.5% and the next print is also expected to be high, you can’t be cutting rates at that point.”
India’s retail inflation rose to a nine-month high of 5.49% in September, driven by a rise in food prices.
The RBI’s inflation target is 4% with a two percentage point tolerance band on either side of that number. While detailing the RBI’s monetary policy statement earlier this month, Das had said that September inflation would register a large jump and that the October figure would be high too.
“But thereafter, going into November and December, we expect inflation to moderate,” Das said.
The central bank head didn’t agree that the RBI is behind the curve when it comes to cutting interest rates.Status Quo Since Feb 2023
The central bank wants to ensure a durable decline in inflation before joining the “global party” of monetary easing.
After raising the repo rate by a total of 250 basis points between May 2022 and February 2023, the RBI has kept interest rates unchanged. The repo rate — at which the RBI lends to banks — is at 6.50%. The RBI Monetary Policy Committee meets next on December 4-6.
KYC NORMS
Responding to a query about feedback from foreign investors about Indian regulations, Das said that overseas players had sometimes complained about know-your-customer (KYC) norms and the requirement of knowing the ultimate beneficial ownership of investments.
“This is not something which is our creation, but this is a FATF (Financial Action Task Force) requirement. And rightly so, given the context of today’s world where money can come from many sources,” he said.
RUPEE, RESERVES
Referring to observations that the RBI directs the rupee’s exchange rate, Das pointed out that over a twoand-a-half-year horizon, the unit has depreciated around 11% versus the US dollar and that this is in line with global market trends.
with global market trends. “From January 2022 till now, the rupee depreciation vis-à-vis the dollar is about 11.0-11.5%… So the rupee has been depreciating in response to the overall movement of the dollar and the overall movement of the international market,” he said.
“Why I felt it necessary to clarify is because sometimes there is an impression — and I am not being defensive about it — sometimes there is an impression as if we are managing the exchange rate. We are not managing the exchange rate.”
Over the past week, the rupee has hit new lows versus the dollar. It weakened past the psychologically significant 84 per dollar mark for the first time due to foreign outflows from local stocks sparked by reduced expectations of US rate cuts and risk aversion caused by the escalation in West Asia tensions.