Mumbai: As voices for changing the policy stance grow, the Reserve Bank Governor Shaktikanta Das Tuesday said it is “too premature” to make the shift and stressed that the apex bank has to “shun” any adventurism on the rates front, given the pressure from food inflation.
Speaking at broadcaster ET Now’s Leadership Dialogues here, Das also said that the Reserve Bank is monitoring the high trading volumes in the futures and options segment along with Sebi but any action on it will be taken by the markets regulator.
He further said that the growth momentum continues to be strong, and sounded confident of the economy expanding at a “conservative” RBI projection of 7.2 per cent.
In the recently concluded meeting of the six-member monetary policy committee, one more member shifted sides to vote for a change in policy stance to “neutral” from the “withdrawal of accommodation”.
“… it will be too premature to talk in terms of changing the (policy) stance. I think …any form of adventurism should be shunned at this point of time. Its better to stay the course,” Das said replying to a question on policy stance.
Das acknowledged that there is a “clamour” to change the stance but RBI wants “clear evidence” that inflation is moderating “perhaps a little faster”.
He said even though inflation has cooled in the recent past and is expected to go down further, there is a possibility of the headline number touching 5 per cent as well in the near future given a slew of pressures.
Das said even though core inflation has moderated to comfortable levels, food inflation has been at or above 8 per cent in the last few readings, and added that adverse aspects like severe heat conditions make it uncertain.
Additionally, he also pointed to a firming in the international metal prices and global food price index as pressure points for inflation.
Reiterating his comments made earlier, Das said it is the last mile of inflation that will be the most sticky. Inflation is moderating but at a fairly slow pace, he said, adding that the RBI is confident that the downward journey of inflation will continue albeit at a slow pace.
He said the last mile is getting sticky and arduous because of the stubborn food inflation, he said, making it clear that the downward move on inflation were to be fastened, we will have to take into account the sacrifices on the growth front.
On the growth front, he said RBI’s internal analysis is showing that the April-June quarter growth is likely to come better than the estimate of 7.3 per cent, Das said.
Das said the RBI’s projection for FY25 at 7.2 per cent is a conservative one and exuded confidence that the economy will surely meet the expectations. He also reminded that the RBI’s projections last year were called out as too optimistic, but the economy performed better than what the central bank had expected.
Factors like a pick up in rural demand especially after the better than normal monsoon prediction of the Met office, urban demand holding on due to the pick-up in services sector and a pick-up in private sector investments make the RBI optimistic about a high growth, he said.
Amid concerns around the lack of private capex, Governor Das said an analysis of corporate balance sheets will reveal a jump in fixed assets lately and explained that during the Covid period they had preferred to deleverage which led to a pick up in the cash component which is now getting invested.
Meanwhile, replying to a question on the higher retail play in the riskier futures and options trade, Das acknowledged the volumes being very high and crossing the GDP as well and added that the central bank is monitoring the situation along with Sebi.
Any action in the matter will be from the capital markets regulator, Das made it clear, pointing out that an early warning group tasked with financial stability and comprising of officials from both the regulators is watching the developments.
He said there is nothing to worry about in the real estate sector at present. Data is reflecting a higher play by banks in the sector, Das said, explaining that this is due to the HDFC twins’ merger last July.
The Governor also said that there is a possibility of the current account deficit for the March quarter to be announced next week to come below the figure of 1.2 per cent for the first nine months of FY24.
Amid talk of increased inflows following the country’s inclusion in global bond indices, the Governor said the RBI will keep on building reserves to act as necessary tools to contain volatilities in the future. As part of its reserve diverse diversification strategy, it will continue adding gold.
PTI