June 25th 2024.
The Governor of the Reserve Bank of India, Shaktikanta Das, confidently stated on Tuesday that the current high interest rates are not hindering economic growth. He emphasized that the focus of monetary policy going forward will be on bringing down inflation.
Speaking at an event hosted by the Bombay Chamber of Commerce and Industry, Das highlighted that the country is on the cusp of a major shift in its growth trajectory. He expressed optimism that India can sustain a real GDP growth of 8% annually.
Das further explained that sustained economic growth is a clear indication that monetary policy and interest rates are not impeding progress. He dismissed concerns about sacrificing growth due to high interest rates, stating that the growth momentum has continued month after month.
The Governor also mentioned the RBI's nowcasting team, which is projecting a GDP growth rate of 7.4% for the June quarter. He shared that this is higher than the central bank's own estimate of 7.3%, and he is confident that the economy will grow at the estimated rate of 7.2% for the fiscal year.
Das used the analogy of a game of chess to drive home the importance of focusing on inflation moderation. He warned that one wrong move could derail progress and emphasized the need for vigilance, as a single adverse weather event could cause inflation to rise above 5%.
He acknowledged that inflation has decreased from 7.8% in 2022 to the current rate of 4.7%, primarily due to the actions taken by the monetary policy. Das also highlighted the link between lower inflation and sustainable growth, stating that high inflation can make the economy uncompetitive and adversely affect the purchasing power of the people.
On the topic of economic growth, Das noted that after three years of government-driven growth, there is now evidence of private capital expenditure picking up. He pointed to sectors like cement and steel, which are associated with infrastructure, as witnessing the highest interest.
Contrary to some suggestions, including from former RBI Governor Raghuram Rajan, Das believes that India cannot rely solely on the services sector for growth. He emphasized the need for a multi-sectoral approach to achieve growth.
In reference to the recent leadership transition at Bandhan Bank, where the RBI has placed an additional director on the board, Das assured that both the banking and non-banking sectors in India are healthy. He also highlighted the country's improved financial stability metrics, which he attributed to reforms such as GST, the bankruptcy code, and flexible inflation targeting.
Overall, Das expressed confidence in India's growth prospects and emphasized the importance of maintaining a balance between inflation and growth.
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