El Nino a challenge; RBI striving for 4% CPI: Shaktikanta Das | Mint
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Business News/ Economy / El Nino a challenge; RBI striving for 4% CPI: Shaktikanta Das
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El Nino a challenge; RBI striving for 4% CPI: Shaktikanta Das

‘Although there is an expectation of a normal monsoon, there are concerns around El Nino. We will have to see how serious it is. Other challenges are primarily weather-related events, which can have an impact on food inflation,’ Das said, adding that we will have to grapple with these uncertainties.

Shaktikanta Das, governor of the Reserve Bank of India (RBI), during a news conference. Photographer: Samyukta Lakshmi/Bloomberg (Bloomberg)Premium
Shaktikanta Das, governor of the Reserve Bank of India (RBI), during a news conference. Photographer: Samyukta Lakshmi/Bloomberg (Bloomberg)

Reserve Bank of India (RBI) Governor Shaktikanta Das has said that the central bank will strive to get headline inflation under the 4 per cent target but flagged El Nino as a challenge to curb food inflation, in an interview to PTI Bhasha. "We continue to be watchful on the inflation front. We expect inflation to be at 5.1 per cent in FY24, and we will continue to strive and get it down to 4 per cent," said Das. 

Food inflation has also come down, said the RBI Governor, adding that measures like the Food Corporation of India releasing wheat and rice stocks have helped. Targeted cuts in duties on certain products have also helped, he said.

Also Read: Higher CPI, volatile stocks and yields: RBI explains how OPEC decisions impact Indian economy

When asked about the challenges on the inflation front, Das pointed to 2-3 factors like the volatile international situation due to geopolitics and the monsoon situation in India.

"Although there is an expectation of a normal monsoon, there are concerns around El Nino. We will have to see how serious it is. Other challenges are primarily weather-related events, which can have an impact on food inflation," Das said, adding that we will have to grapple with these uncertainties.

The RBI Governor is confident that the economy will grow at 6.5 per cent in FY24, as estimated by the RBI earlier. On the growth front, Das said the RBI has taken all the factors into consideration while arriving at its estimate of a 6.5 per cent expansion in real GDP and is confident of the economy attaining the same even though other watchers like IMF estimate it to be much lower.

On inflation, Das explained that the central bank's rate hikes by a cumulative 2.50 per cent since May last year, coupled with supply-side measures from the government, have helped to bring CPI down to 4.25 per cent in May from a peak of 7.8 per cent in April last year. 

Over high borrowing costs, he explained that interest rates on loans may have a direct relation with inflation, and if inflation cools down on a durable basis, people can expect lower interest rates on loans. 

‘’The Russia-Ukraine war, which led to a shoot-up in the commodity prices, led to a surge in inflation, but crude prices are not a concern from an inflation perspective now as they've come down to $76-76 a barrel,'' said Das. He said the bank credit growth of around 16 per cent is sustainable, and the RBI is watchful of the developments on this front. 

There is a lot of demand for credit from corporates as well, including for project loans as well, he said, underlining that the overall credit growth is broad-based. 

The global oil supply decisions by the Organization of the Petroleum Exporting Countries and its allies led by Russia, or OPEC+, have typically always had a significant impact on oil price movements. However, the RBI in its June 2023 bulletin has revealed that India's domestic crude oil basket, equity prices of oil and gas sector firms and sovereign bond yields witness high volatility during the oil output decisions by OPEC+.

On the currency front, Das said that the rupee has been less volatile in the calendar year 2023, and the domestic currency has strengthened against the dollar, Das said, reiterating that the RBI will continue with its efforts to reduce volatility. 

Das added that he is confident that the rupee will not get impacted even if the US Fed hikes rates, pointing out that the domestic currency has been stable, even in the face of a 5 percentage points increase in rates in the US. The RBI governor said the current account deficit (CAD) will be "eminently manageable" in FY24, as there are positives like higher services exports and lower crude prices working in our favour.

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Published: 25 Jun 2023, 05:34 PM IST
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