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Change in monetary policy framework unlikely, says RBI governor
1 min read.Updated: 14 Dec 2020, 12:06 PM ISTReuters
The law says at least once in five years the government will notify the inflation target. It doesn't provide for a review of the framework, says Shaktikanta Das
There is unlikely to be any change in the inflation target band or framework given to India's Monetary Policy Committee (MPC) that is due for a review next year, Reserve Bank of India Governor Shaktikanta Das told Economic Times in an interview.
"I am not aware of any such thinking to change the framework. It is cast in law. I think we should be able to deal with it within the existing framework," Das told the financial daily.
There were talks about the government looking at relaxing the inflation target band to provide the central bank with more flexibility in supporting growth in recent weeks.
The MPC is currently mandated to keep retail inflation within the 2%-6% range while targeting medium-term inflation at 4%.
"The law says at least once in five years the government will notify the inflation target. It doesn't provide for a review of the framework. If you make the band too wide then it loses its meaning," Das, who completed two years as the RBI governor, said.
The RBI is aware of risks of reversing the record-low interest rates or withdrawing the surplus rupee liquidity too soon, Das said, adding that the central bank is also conscious of the risks posed by rates left unattended for too long.
The MPC left interest rates steady as expected earlier this month and said it expects the economy to contract by a 7.5% in the current financial year through March 2021.
"We are very much aware that a premature withdrawal will be detrimental to growth," he said.
"A delayed withdrawal will also have its own negative effects. We are fully aware and conscious of both ends of the situation. Therefore, we will have to take a balanced call and at the right time," he added.