Treasury yields, meanwhile, climbed in the US on expectations that, while a Donald Trump presidency would boost American risk assets, his administration might require borrowing more to meet poll promises, thus limiting the elbow room for the US Federal Reserve to reduce policy rates more quickly.
Das said the RBI anticipated the September and October Consumer Price Index (CPI) numbers would be higher.
“October inflation CPI numbers are again going to be very high, perhaps higher than the September numbers,” Das said. The RBI Governor emphasized that he had highlighted “significant upside risks to inflation.”
The RBI projected CPI at 4.5% for FY25.India’s inflation targeting policy mandates a target of 4% – with a two percentage point latitude in either direction.Das also said the central bank will have to be very cautious on the future course of action. In the October policy, the RBI changed its stance to ‘neutral’ from the ‘withdrawal of accommodation’, but left the repo rate unchanged at 6.50%. The policy rate was last changed in February 2023.
The RBI has lately been tempering expectations of a rate cut in December. The Governor had last month said “a rate cut at this stage will be very premature and can be very, very risky.”
Robust Economy
On Wednesday, Das said the pace of economic activity remains strong, regardless of the expected consumer pricing pressures.
“(Economic) data that is coming in is mixed. But the positives outweigh the negatives and, by and large, underlying activities remain strong,” he said.
The RBI has projected a 7.2% rate of economic expansion for this fiscal year, while the International Monetary Fund (IMF) expects New Delhi to log 7% growth.
Governor Das said that high-speed indicators show that the index of industrial production (IIP) data and FMCG sales in the urban sector have considerably moderated, but the GST, e-way bills, toll collections, air passenger traffic, steel and cement sales, and even the automobile sector have done well. Das said he would not “rush to say the economy is slowing.”
Lower-than-estimated corporate earnings and weakness in urban consumption, as reflected in the revenue and bottom-lines of FMCG leaders, had raised concerns that growth was slowing.
“The Indian economy and financial sector are well placed to handle any kind of spillovers from global events. Overall, India’s macroeconomic and macro-financial conditions are very resilient to spillovers from anywhere in the world,” he said.
‘Focus on Correction’
On the regulatory front, the RBI Governor said action against four finance companies is ‘not punitive, but corrective.’ The central bank recently asked four finance companies to ‘cease and desist’ from giving new loans as they were found to be charging excessive interest rates.
“The RBI action is very calibrated and selective. Action is taken in a measured way—not abrupt or sudden. It is preceded by months of bilateral interactions with the agencies,” he said.
While acknowledging that it is difficult to monitor the end use of unsecured loans, he said there is some anecdotal evidence that money is going into the stock market. “How much of it has gone into the stock markets? It’s very difficult to estimate,” he said.
The Governor stated that the RBI did a quick survey on this. “We have tried our best to quantify how much possibly could have gone into the stock market, but again, I cannot vouch for that figure because it was just a small, quick sample survey,” he said.