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The post Interest Rates Will Stay High For Now: RBI Governor first appeared on Latest India news, analysis and reports on IPA Newspack.
NEW DELHI: Reserve Bank of India (RBI) governor Shaktikanta Das said interest rates will stay high, without offering any indication of when softening could start. Monetary policy must remain “actively disinflationary” to ensure the decline in retail inflation in recent months continues smoothly, Das said.
“Interest rates will remain high. How long they will remain high — I think only time and the way the world is evolving will tell,” the governor said at the Kautilya Economic Conclave 2023 in the capital on Friday. With regard to lowering rates, he said, “There is no such agenda at the moment.” The recent simultaneous surge of crude oil prices, bond yields and the US dollar have hamstrung the responses of central banks across the globe, the governor said.
The Indian economy has developed resilience, enabling it to withstand large shocks and navigate an increasingly turbulent global landscape, the governor said, urging banks and financial institutions not to lower their guard.
Brent crude surged to nearly $94 a barrel Friday from about $89 earlier this week. US 10-year benchmark yields have spiked to a 16-year high, briefly crossing the psychological 5% mark, roiling financial markets the world over.
Earlier this month, the RBI held rates as retail inflation eased sharply to 5.0% in September from a 15-month high of 7.44% in July, returning to the central bank’s tolerance band of 2-6%.
Further rate action will be guided by how the global situation evolves and impacts domestic factors, he said. Das said price stability and financial stability complement each other and the RBI has been trying to manage both efficiently.
The RBI has raised the benchmark lending rate by 250 basis points since May 2022.
India’s bond yields have risen in line with tighter monetary conditions, with the 10-year benchmark hitting 7.36% on Friday, just shy of a seven-month high of 7.40% set last week.
The governor said the Indian financial sector has remained stable and resilient, as reflected in sustained bank credit growth. Macro stress tests for credit risk revealed that banks will be able to comply with minimum capital requirements even under severe stress scenarios, Das said.
The RBI treats financial stability as “non-negotiable,” a principle that guides its policies and choices of instruments.
“We have strengthened our macroeconomic fundamentals and buffers, and these are imparting resilience to the economy to withstand large shocks and navigate an increasingly turbulent and uncertain global setting,” Das said.
But Indian banks and financial institutions shouldn’t relax their vigilance.
“Buffers are best built up during good times,” Das said. “Banks, NBFCs (non-banking financial companies) and other financial sector entities should remain vigilant and complete the pending repairs, if any, to their houses.”
The global economy, Das said, is facing a triad of challenges — elevated inflation, slowing growth with fresh obstacles and financial instability risks.
“In such a situation, conflict may arise between the requirements of price and financial stability, but policymakers have to deftly tread a fine balance, as it is important to recognise that price and financial stability reinforce each other in the medium to long term,” he said.
Das said Rs 2,000 notes worth just Rs 10,000 crore are still with people, adding that these could soon return to the banking system. Earlier this month, Das said about Rs 12,000 crore in Rs 2,000 notes, of the Rs 3.56 lakh crore in circulation as on May 19, 2023, had not been deposited with banks.
On the rise in the global crude oil prices, Das indicated that retail inflation is ultimately moved by the price at the pump. Some experts have said oil marketing companies could absorb the rise in global prices for some time and pass it on only gradually.
Das said financial stability measures aimed at effective regulation and supervision of banks, NBFCs and markets can enhance monetary transmission and help achieve price stability. However, such measures through extraordinary monetary expansion, if not corrected in time, can jeopardise price stability, he said.
Responding to a query, Das said the RBI’s regulations and supervision are ownership-neutral and both public and private banks are subject to them, signaling that state-run lenders don’t get any relaxation on this front vis-à-vis private peers.
Source: The Economic Times
The post Interest Rates Will Stay High For Now: RBI Governor first appeared on Latest India news, analysis and reports on IPA Newspack.
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