RBI Governor vows ample liquidity to aid India's economy

RBI has infused Rs 17 trn during past two years and will ensure adequate funds that economy needs, says Shaktikanta Das

Reserve Bank Governor Shaktikanta Das on Monday said the RBI will continue to ensure adequate liquidity to support the economy, which is facing many headwinds in the form of soaring crude oil and key commodity prices following the Russian invasion of Ukraine.

Das, while addressing an industry meet organised by CII here this evening, said since the pandemic-hit the economy in March 2020, the central bank has pumped in a whopping Rs 17 trillion into the economy and assured the industry that the RBI will continue to ensure that the economy is well oiled with funds.

The governor further said banks at the system level are in better health now with the capital adequacy ratio at 16 per cent, and gross NPAs falling to a record low of 6.5 per cent.

He said despite the headwinds arising from the Russia-Ukraine war, the economy is better placed given the high forex reserves and low current account gap.

"We are comfortably placed to deal with any challenges with regard to financing the CAD, and the RBI stands committed to deal with any challenges on this front," he said.
 

RBI will ensure ample liquidity to support the recovery of its economy, Das said, signaling above-target inflation is not as much of a threat to Asia’s third-largest economy at the moment.

Premature tightening of monetary policy settings would have proved counter-productive to demand, he said.

The statement reiterates Das’s view from last month that nature of inflation in India is different from the US, and hence there was no hurry to follow peers in raising borrowing costs. That said, the war in Ukraine poses a threat to RBI’s benign inflation outlook, with Das acknowledging that the central bank’s 4.5% price-growth forecast for next fiscal year beginning April needs to be reworked.

The pandemic and geopolitical risks have pushed the RBI to be innovative, Das said, adding that hit to growth from the conflict would be very marginal.

Although headline inflation breached the central bank’s 6% upper tolerance limit in the first two months of this year, the RBI has maintained that the price-growth was supply driven and transitory. It also last month saw growth slowing to 7.8% next fiscal year from the 8.9% pace estimated by the government for this year.

Das said the central bank was conscious of its role of maintaining price stability, but it was the government’s job to deal with supply side issues and not that of monetary policy.

The RBI’s six-member MPC is due to meet early next month to review policy, which has stayed accommodative for nearly three years and interest rates kept unchanged at a record low for about two years.

Das said he will go into the next policy with an open mind, but clarified this wasn’t a signal or indication about the next policy decision.