Slack in economy, not the right time to change policy course: RBI Governor

Shaktikanta Das tells TV channel that capacity utilisation is nowhere near pre-pandemic levels

The Reserve Bank of India (RBI) may consider changing its policy course after economic activity shows signs of “durability and sustainability”, but it would be done in manner so as not to surprise the markets, Governor Shaktikanta Das has said in an interview with a television channel.

Capacity utilisation is “nowhere near pre-pandemic levels”, and there is a “slack in the economy”, the RBI governor told CNBC Asia.

“We are constantly monitoring the situation, and we will act at the appropriate time. At the current juncture, we feel that the appropriate time has not come,” Das said, clarifying that the monetary policy committee (MPC) would want the supply-side factors to correct themselves and the authorities should take necessary corrective measures to address the issue.

US Fed meetings and other policy actions by other central banks are being monitored by the RBI because those impact the domestic situation, but “our monetary policy is primarily and principally determined by domestic macroeconomic conditions”, the central bank chief said.

“All our actions will be calibrated, they will be well-timed, they will be cautious ... We don’t want to give any sudden shock or any sudden surprises to the markets,” he said.

The governor expects consumer demand to “increase substantially” by the end of the year over the current levels or “over the levels seen where the Covid impact took them down”. The pandemic has dented consumption, and aggregate demand is “still nowhere near normal”, he said.

He saw impulses of inflation as transitory and should moderate by the third quarter. The current inflation momentum is driven by supply-side factors, which are getting corrected through actions by the authorities concerned.

The RBI’s endeavour will be to ensure that “inflation does not become uncontrollable”, and that it would be “dealt with”.

The 9.5 per cent growth projection by the RBI, which is a scale-down from the 10.5 per cent earlier, is “quite appropriate for the current (fiscal) year”, Das said. 

He defended the MPC’s stance on tolerating an inflation rate of around 6 per cent, because the flexible inflation-targeting regime allowed that freedom in an extreme situation like the present.

The central bank plans to start pilot projects involving the central bank digital currency (CBDC) “by December or so”.

“We are being extremely careful about it because it’s a completely new product, not just for the RBI but globally,” Das said, adding the central bank was evaluating the security of the digital currency, and assessing what impact it might have on the financial sector and monetary policy.

However, on private cryptocurrencies, the central bank is still concerned about their impact on financial stability.