“We are completely focused on inflation, we are keeping a close eye on growth,” Das said in an interview with NDTV television channel on Tuesday. “We want inflation to slow and be around 4% and be there,” he added.
The inflation rate in July eased below the RBI’s target for the first time since 2019, but the central bank expects it to climb back again from September. The RBI has kept its policy rate unchanged for over 18 months. In its policy review earlier this month, it paused because of the effects of persistent food inflation on overall prices.
It will be a “serious policy mistake” to cut rates based on the one-off dip in inflation, Das said. Decisions on rates have to be data-dependent and the central bank does not “want to confuse people giving guidance,” the governor said.
There’s growing debate about whether it’s appropriate for the RBI to target an inflation measure that includes food since interest rates won’t have a direct effect on their prices. Das said leaving out food inflation will dent policy credibility as it has a weight of 46% in the overall consumer price index.
Here’s more from Das’s interview:
- Tight monetary policy has only had a “minimal impact” on growth
- The country can maintain its high growth path by ensuring price and financial stability, continued reforms in manufacturing sector and improving agricultural productivity
- RBI is cautioning banks to maintain a balance between credit and deposits so that liquidity mismatches are avoided; banks should offer attractive plans to attract deposits
- All regulators, law enforcement agencies, and the government are working together to ensure robust cybersecurity and to minimize online frauds