Volatile commodity rates, monetary policy uncertainty a deadly mix of challenges for policymakers, stakeholders: RBI Governor
RBI Governor Shaktikanta Das reiterated that the top priority of the Monetary Policy Committee (MPC) priority is inflation over growth and to drain out excess liquidity from the system.
Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday described the combination of volatile commodity prices and monetary policy uncertainty as a "deadly mix of challenges" for policymakers and stakeholders. The priority of the Monetary Policy Committee (MPC) is inflation over economic growth, and to drain out excess liquidity from the system, the RBI chief reiterated while speaking at an event jointly organised by industry bodies FICCI and IBA.
The recent hikes in interest rates led to a situation where banks came under stress but believing that low interest rates will always remain low is fundamentally wrong, he said. "Banks' balance sheets improved due to strong asset quality," he said.
"Financial stability and price stability go hand in hand. Excessive focus on one and ignoring the other can cause stress so a balanced approach is a necessity," Das added.
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The RBI Governor also said the recent policy moves, to raise the repo rate and tighten liquidity conditions, were to counter consumer inflation.
The central bank has already raised the repo rate—or the key interest rate at which it lends funds to commercial banks—by a total 250 basis points (bps) in six revisions between May 2022 and February 2023.
"India is the third largest economy in terms of purchasing power," the RBI Governor said.
At its October review, the MPC—chaired by the RBI Governor—decided unanimously to keep the repo rate unchanged at the existing 6.5 per cent at the end three-day deliberations.
It also maintained its GDP growth and consumer inflation projections for the current financial year, at 6.5 per cent and 5.4 per cent, respectively.
(This story will be updated shortly)
03:40 PM IST