RBI Governor Shaktikanta Das presents India's policy response as Template
RBI Governor Shaktikanta Das has suggested that other nations adopt India's approach of coordinating between the central bank and government to tackle both demand and supply-side inflation. Das proposed this coordinated strategy, highlighting the potential risks of sovereign indebtedness in certain countries and emphasizing the importance of avoiding sole reliance on interest rate hikes to control inflation, which could potentially destabilize financial systems.
Das stated that India's effective policy response to negative shocks could serve as a model for others to follow. Monetary policy anchored inflation expectations, while govt supply-side interventions eased pressures and moderated cost-push inflation. "India's coordinated policy response in the face of a series of adverse shocks can be a good template for the future", said Das.
Das was speaking at the 59th SEACEN (South East Asian Central Banks) Governors' Conference in Mumbai. "India has successfully navigated multiple challenges and emerged as the fastest-growing large economy", he said. He said the economy is set to grow for the fourth successive year at or above 7%.
"Recurring food price shocks and renewed flash points on the geo-political front, however, pose challenges to the ongoing disinflation process", said Das. He stated that the RBI remained watchful while navigating the final stages of disinflation, recognizing it as the most challenging phase of the process.
Das noted that prior to the pandemic, monetary policy focused on stimulating growth while countering deflationary forces. However, there has been a sudden transition: central banks have embraced "higher for longer" interest rates to address inflationary pressures following the conflict in Ukraine. This shift, combined with pre-existing debt obligations, raises apprehensions regarding macroeconomic stability.
