Too early to talk rate cut, won't give guidance: RBI Governor Das

RBI guv says expected credit loss norms in final state of examination, should be out in current financial year

With the inflation rate hovering around 5 per cent, it is premature to have any discussion on rate cuts, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday.

Das said he would prefer not to provide any guidance that might mislead market players, stakeholders, and others.

“The last (inflation) print was 4.7 per cent (May), and the June inflation is expected to be out tomorrow (Friday). That is also expected to be, (according to) the survey done by various wire services, that is likely to be close to 5 per cent (June). So when we are at 5 per cent and our target is 4 per cent, I would feel it is too premature to talk about interest rate cuts,” he said in an interview with CNBC TV18.

 

“I would not like to give any kind of forward guidance that would lead market players, stakeholders and others to board the wrong train,” he added.

The domestic rate-setting panel has kept the repo rate unchanged at 6.50 per cent since February 2023 while maintaining the stance of the policy “withdrawal of accommodation”.

In the same breath, he said a change in stance too was premature because the pace of moderation in price rise had been slow.

“One idiosyncratic development like some monsoon flooding or some weather-related event can upset things. Vegetable prices can go up. So, therefore, and the point is even today we are still around 5 per cent. So, if you want a faster alignment of our inflation with the 4 per cent target, the monetary policy should be much tighter (and) much more restrictive. But we have not done it because we balance between growth and inflation,” he said.

Two of the six members of the monetary policy committee voted last month to cut the policy repo rate and a change in stance to “neutral”, arguing that an overly tight policy might hinder economic growth.

“It will be too early to talk in terms of a change of stance,” Das said.

The central banker further stated India’s ratings upgrade should have happened earlier.

India is rated “BBB-”.

“The government has announced a fiscal consolidation path. And the Interim Budget gave a fiscal deficit of 5.1 per cent. And next year (financial year), 2025-26, it is supposed to be 4.5, according to the road map which the government has given. Things appear to be moving in that direction. So, I think a ratings upgrade should happen. It should have happened earlier,” he said

On the issue of a neutral rate of interest, Das said the RBI would release the study on a neutral rate after completing the current analysis in one-two months. A neutral rate or the real rate is the repo rate minus inflation.

He further said a neutral rate was subject to uncertainties and policy making should not be driven by a theoretical construct.

“Policy making has to be driven not by an abstract theoretical construct but by actual numbers,” said Das.

“Today headline inflation is at 5 per cent. We have projected growth of 7.2 per cent. We are still quite a distance away from our target regarding inflation, but growth is holding quite well,” he added.

The governor said loan-loss provision norms based on an expected credit-loss (ECL) framework were in the final stage of examination and should be out this financial year.

Commenting on the recent draft norms on project finance, which proposed standard asset provisioning of 5 per cent for under-construction projects, evoking sharp resistance from banks, the RBI governor said the regulations were aimed at strengthening banks’ balance sheets.

The RBI seeks to understand the perspectives and challenges faced by stakeholders before proceeding further.

“We are following a consultative process. We try to understand the point of view on the other side and the difficulties they have, and then we will move forward,” he said.