Home / Economy / Das backs inflation stance ahead of RBI policy meet

MUMBAI : Reserve Bank of India governor Shaktikanta Das on Wednesday defended the central bank’s actions saying that premature tightening of policy rates would have been very costly for the country.

While acknowledging that RBI was behind the curve to tame inflation, Das said that the monetary policy committee (MPC) did not want to upset the recovery process. “We prevented a complete downward turn of our economy after recording negative growth in FY20-21," said Das in his inaugural speech at a banking conference. “We wanted the economy to safely land in turbulent waters through which the economy has been sailing through the covid period," he added.

However, Das said RBI is keeping an “Arjun’s eye" on inflation, even as the retail inflation rate remained over 6% for nine consecutive months, forcing it to conduct an off-cycle MPC meet on Thursday. The committee is expected to discuss its report with the government as inflation continues to remain beyond its comfort zone.

Amid criticism for its decision not to make the communication public, Das said there is no law which gives him the privilege, luxury and authority to go public with the letter before the government receives it.

“Lot of discussion about why RBI is not releasing its letter to the government publicly. MPC minutes of the meeting are meant for the wider economy. The letter will be available to the public at some point in time," Das said at FIBAC 2022. “I ensure transparency is not being compromised. The monetary policy framework is a transparent framework and the writing of the letter is also an essential and fundamental element of that transparency," he added.

However, RBI will not immediately release details of its special policy-setting committee meeting, he said.

On the recently launched Central Bank Digital Currency (CBDC), Das said RBI is not going to hasten the launch and will do so after considering the lessons from the pilot projects.

“I don’t want to give a target date by which time CBDCs will be launched in a full-scale manner, because this is something where we have to proceed very carefully. We don’t want to be in a great hurry, we want to learn from the experiences of the pilots we are running," he said.

RBI launched the pilot for CBDC in the wholesale segment from 1 November. The use case for the pilot is the settlement of secondary market transactions in government securities. On the first day, 48 trades worth 275 crore were carried out and on the second day, 45 trades worth 290 crore were completed.RBI is expected to launch the retail part of the CBDC later this month.

Das said CBDC is a landmark moment. “It is going to be a major transformation in the way business is done, the way transactions are conducted," he added. Das also said RBI is among the few central banks in the world that have taken this initiative.

On liquidity, Das said the current tightness will ease as the currency returns to the banking system, government expenditure picks up, pace of foreign exchange outflows moderates and deposit growth of banks picks up. “Banks have adequate cushion of the statutory liquidity ratio to meet any potential liquidity requirement. The outstanding absorption of liquidity under the standing deposit facility stood at 84,768 crore on 31 October. RBI remains agile and watchful, continuously monitoring the liquidity situation, and is ready to undertake liquidity operations on either side so that the overall liquidity remains adequate to meet requirements of the productive sectors of the economy," he said.

Gopika Gopakumar
Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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