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New Delhi: The Reserve Bank of India (RBI) is not in favour of revising the inflation target of 4% and it is too early to get into such a debate, Governor Shaktikanta Das said at the Hindustan Times Leadership Summit 2022 in the capital.

In a conversation with R Sukumar, editor-in-chief of Hindustan Times, Das said that getting into such a debate prematurely by central banks will only show less commitment to fighting inflation. Instead, Das said, the RBI remained committed to the targeted 2-6% range.

“I would not like this debate to start prematurely. It will only mean less commitment of central banks to fight the war on inflation. I personally believe and RBI also believes we should not enter into that debate so early," Das said in response to a question about such a debate globally.

Das conceded that India now has a major challenge with inflation. “But comparatively if you see, our upper ceiling is 6%. The last inflation number released, for September was 7.4%. We expect October number which will be released on Monday, to be lower than 7%. Therefore, Inflation is a concern which we are dealing with effectively," Das said.

Das explained that there was a reason why the target was kept at 4% based on a study by an internal committee so that the central bank had a 2-6% target range.

“RBI research at that point found, and even now it holds good, that inflation above 6% for India will be detrimental to growth…. If it is above 6% for a prolonged period, financial savings will be hit, investment climate will be hit, India will lose the confidence of international investors. Any inflation above 6% is detrimental to growth. Therefore 6% has been kept as the upper tolerance band. The fact that we have a tolerance band between 4% and 6% gives RBI enough policy space to use during period of stress," Das said.

“I would say we stand committed to the current stand of 4% which makes a lot of sense and it gives us enough space to deal with crisis situations and shocks," Das said.

Das also said that the RBI has written to the government about the reasons inflation remained high.

He also said a central bank digital currency (CBDC) could bring down cost of cross border payments. When CBDC comes in a group of countries, the cost will be practically marginal. It will be substantially minimized, he said.

Talking of the growth prospects for India, he said that the "growth numbers are looking good in the current context". Das noted that RBI's growth outlook for FY23 is 7% while the International Monetary Fund (IMF) has projected a growth rate of 6.8%.

Drawing comparisons with European Union countries, the US and other economies impacted amid the Russia-Ukraine conflict, he said that the Indian economy remains resilient.

"The macroeconomic fundamentals of India remain strong and resilient," Das said adding that the financial sector also is resilient.

Speaking on RBI's forex interventions, he stressed on the need for stability in the forex market and orderly evolution of rupee.

"You can't be in a situation where in a period of 2-3 days, rupee crashes and you have excessive volatility," adding that the RBI ensures orderly movement of the market and anchors market expectations.

He also said that India's forex reserves are "very comfortable".

The RBI governor also emphasized the need to regulate innovation, adding that the central bank was supportive of innovations.

On the long-drawn debate over the autonomy of central banks, he said that RBI is the monetary authority, while the Centre is the fiscal authority and there is a need for coordination between the two for the economic growth of the country and the process of consultation has to prevail. "If the economy has to do well both have to coordinate well."

ABOUT THE AUTHOR

Rituraj Baruah

Rituraj Baruah is a senior correspondent at Mint, reporting on housing, urban affairs, small businesses and energy. He has reported on diverse sectors over the last six years including, commodities and stocks market, insolvency and real estate. He has previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.
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