Inflation to moderate despite periodic humps: Das

India’s economic growth has remained resilient and inflation is expected to moderate despite periodic humps, Reserve Bank of India (RBI) governor Shaktikanta Das said on Thursday.

“Without being complacent, let me say that the Indian economy has sailed well through the prolonged period of turbulence and exhibits resilience in the face of constantly emerging new challenges,” he said at an event in Mumbai.

Stating that monetary policy has completed a full cycle in the last six years – an easing cycle during 2019-22 and a tightening cycle of equal magnitude thereafter, he said the Monetary Policy Committee (MPC) in its meeting on October 7-9, 2024 took note of the prevailing and expected inflation-growth dynamics and decided to change the monetary policy stance from withdrawal of accommodation to ‘neutral’. 

The MPC also decided to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth, he said. 

The governor said amidst global headwinds and contradictions, the Indian economy is sailing through smoothly, powered by buffers like strong macro-economic fundamentals, stable financial system and resilient external sector. 

“Our endeavour has been to seize every opportunity to further strengthen our fundamentals through prudent and proactive policy approach. Our prime focus has been to maintain financial stability, which breeds growth and prosperity,” he told the audience which included three former central bank governors namely Dr. C. Rangarajan, Dr. Bimal Jalan and Dr. Y.V. Reddy.  

Emphasizing that money market and government securities market have remained stable despite large swings and spillovers from global markets, he said the weighted average call money rate has remained rangebound within the liquidity adjustment facility (LAF) corridor and closely aligned to the policy repo rate. 

He said the RBI has undertaken several regulatory measures in recent years to ensure resilience and stability of the financial markets. These include putting in place regulatory frameworks for benchmark administrators and electronic trading platforms; robust governance requirements for market makers in OTC derivative markets; and margin requirements for non-centrally cleared derivative reforms.

Governor Das said if the Indian Rupee (INR) has remained relatively stable despite severe external shocks including the largest and steepest tightening by the Fed in 2022 and 2023, ‘it speaks volumes about the sea change in our macro fundamentals from the Taper Tantrum days.’

Stating that India’s exchange rate regime is market determined, he said the forex interventions are carried out to ensure an orderly movement of the exchange rate and to curb undue volatility, anchor market expectations and ensure overall financial stability.

“Overall, the financial sector in India is now more robust and resilient than at the beginning of the recent period of turmoil. There is, however, no room for complacency. The Regulator and the Regulated Entities must remain alert and future ready for the emerging challenges,” he said.

Highlighting that the financial sector has become more complex, with the development of multiple digital products, common market infrastructure and common service providers for IT services, he said the financial system will continue to face newer challenges. 

“There is a continuing need for financial sector entities to strengthen their levels and quality of capital, while further sharpening the risk management standards,” he said.

The RBI is now working on issues like adoption of revised Basel III standards in a phased manner; issuance of guidelines for Expected Credit Loss (ECL); liquidity coverage ratio (LCR); and prudential framework for financing of project loans through a consultative approach, he added.