RBI top brass answer media queries on the bi-monthly monetary policy review
The monetary policy committee left the repo rate unchanged at 4 per cent and maintained accommodative policy stance due to some loss of momentum in economic activity as reflected in high frequency indicators. The Reserve Bank of India (RBI), on its part, too, left the reverse repo rate unchanged at 3.35 per cent. The market was expecting a 20-40 basis points hike in this rates. RBI top brass, including Governor Shaktikanta Das, Deputy Governors MD Patra, M Rajeshwar Rao and T Rabi Sankar, answered media queries on the bi-monthly monetary policy review.
Why did the RBI not hike reverse repo rate? What gives you the comfort that inflation will come down to 4 per cent next year?
Shaktikanta Das: You see the rates, whether it is the repo rate or the reverse repo rate, they represent a particular stance. They are reflecting the stance that the Reserve Bank has adopted with regard to Monetary Policy…So, when the (accommodative) stance continues, we did not see any reason to make any changes or tamper with the rates. But having said that…in a very non-disruptive and in a very seamless manner, the effective reverse repo rate (has moved to) is at 3.87 per cent. And with regard to the inflation and what the other central banks are doing, let me say that on inflation, we have done our homework and based on our homework and very detailed analysis…we have given the projection of 4.5 per cent as the overall inflation in FY23 and that is based on a lot of detailed analysis internally. In fact all uncomfortable questions or all uncomfortable risks have been duly assessed and we have arrived at these numbers. And with regard to what the other central banks are doing, well the character of inflation is somewhat different in those economies compared to India. I would request Deputy Governor Michael Patra to sort of give out the details on that particular aspect.
Michael Patra: The character of inflation is very different in the US, for instance, than ours. For instance, one thing that is driving up US inflation is used cars. Now, that is not a basis for our inflation and nor are we importing used cars from the US. Like in Europe the issue is truck drivers and that is also something we don’t import. To give you a granular example, food inflation, according to the Food and Agriculture Organisation is rolling at 29-30 per cent, but our food inflation is between 2.5-3.5 per cent. Even in the US, food inflation is 6.5 per cent. So, there is a material difference in the way in which our inflation is evolving. Also, in the core inflation, the usual drivers of core inflation such as wage growth or rental growth is not there in India. So, we have to respond to an entirely different inflation evolution.
Given the uneven recovery, is the fiscal policy better attuned to deal with it rather than monetary policy?
Das: Fiscal policy and monetary policy, you cannot see it as either/or. And it has to be a coordinated approach, especially during this kind of difficult/ turbulent times that we have gone through in the last two years. The growth momentum is definitely positive, but in my statement, I have clearly spelt out that private investment, the private demand, consumption demand, are still lagging and it’s not a question of either/or. I mean, the fiscal action is calibrated, they have expanded capital expenditure and at the same time as far as I see, there is an effort towards fiscal consolidation so as to reach the target which the Finance Minister gave out in her speech last year…So, they are on a particular roadmap. So far as the RBI is concerned, we are also on a particular roadmap. And there is a coordinated policy action. Definitely the fiscal has an important role at the current juncture and we feel that the RBI also, the monetary policy also has to be supportive to make the growth sustainable and durable. I think we have spelt it out and that’s how I would like to reply
Crude oil prices, gas prices still higher. Are we underestimating inflation?
Das: As I have mentioned at the start of the press meet, all scenarios – energy price, crude oil prices, downside and upside have been considered. We believe the projections are realistic. As a central bank, we have our credibility and will not give a wrong projection deliberately. We have done our homework and detailed analysis has been done internally. All scenarios have been considered, all cross currents, uncomfortable developments have been factored and then we have come with the projection
What is the update on Central Bank Digital Currency be introduced?
T Rabi Shankar: We have been working on CBDC and digital rupee for the last 1.5-2 years. The Budget has proposed that the RBI Act will be amended to enable issue of CBDC. Once that is done, the pilots and proofs of concept will be tried. Going ahead a lot of designs and technological features, the proof of concept will be tested.
Das: I do not want to give a timeline for CBDC. We are working very carefully, we do not want to be hasty. Very carefully and cautiously we are examining and moving ahead. The biggest risk is of cybersecurity and counterfeiting, which must be prevented. This is a new product. All central banks world over that are working on it are working cautiously. We are also proceeding with due care and caution. We will keep the Budget timeline of 2022-23 in mind and moving ahead
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