Repo Rate alone doesn’t impact growth: Shaktikanta Das

Taking on criticism linking the Reserve Bank of India’s ‘tight’ monetary policy leading to a growth ‘sacrifice’ in recent months, Governor Shaktikanta Das, on his last day at the helm of Mint Street, asserted that everybody is entitled to a viewpoint but growth is impacted by a “multiplicity of factors” not just the benchmark interest rate.

“As I look at it, I think growth is impacted by multiplicity of factors, not just one factor of the Repo rate. Growth — high growth or slowing growth — are impacted by multiplicity of factors… and should be not looked at very simplistically,” he noted.

“Our effort has been to make the monetary policy as appropriate as possible, keeping in mind the prevailing conditions and, more importantly, the overall outlook on what lies ahead. Beyond that, the assessment of our policy is for others to make, but I think within the RBI, we are convinced that what we have done was the best option available under these circumstances,” he noted.

Mr. Das’ remarks assume significance after the RBI decided to hold the repo rate unchanged at 6.5% for its 11th straight bi-monthly monetary policy review last Friday, in the backdrop of inflation spiking to a 14-month high of 6.2% in October even as GDP growth fell to a seven quarter low of 5.4% in the July to September 2024 quarter.

Going forward, he identified “restoring the inflation-growth balance” as the most important task for the Reserve Bank of India, and exuded confidence that Team RBI, under the leadership of the new Governor Sanjay Malhotra, will take it forward. This, he said, was important for the wider economy as well.

On the flexible inflation targeting framework as opposed to other alternative approaches to maintaining price stability, the Governor said this approach was mandated by the RBI Act.

“Ultimately, the result [on inflation control] will be an outcome of the supply side measures, the government side measures, as well as the monetary measures taken by the Reserve Bank. So it is a synthesis. Beyond that, the approach will depend on the prevalent situation and the outlook. You cannot really define [it], Mr. Das said in response to a query from The Hindu.

“And I would like to say that there is nothing like the terms media and analysts use – such as hawkish, dovish, and the names of various birds. I think my predecessor had used the word owl, to say that the Reserve Bank of India and the Monetary Policy Committee always keeps its eyes open,” he summed up.

Besides the inflation-growth balance, Mr. Das also stressed the need for the central bank to be “alert and agile” to adapt to the fast changing global world order while making policy decisions. Further, he underlined the need to be vigilant of cyber security alerts while highlighting the measures already been taken during his tenure. He also said the new Governor and his team would have to focus on capitalising on technological innovations, while giving examples of the Unified Lending Interface, and the Central Bank Digital Currency currently being piloted.

Speaking about RBI’s management of crises in the banking system and stringency of actions taken, Mr. Das recalled that each situation was dealt with differently and sufficient time was given to banks and NBFCs to take corrective actions before business restrictions were resorted to as a penal action. “We do not wait for the house to catch fire” he said, justifying the cautious approach, when asked if the RBI was too stringent on non-banking finance companies.

Thanking all the stakeholders including the staff of the RBI for supporting him through his six-year term, Mr. Das said he had not decided on if he would take up a public office after stepping away from Mint Street.