Today, India is far more resilient than what it was earlier, says RBI

India has improved its resilience vis-a-vis external shocks quite a bit, Das said

Reserve Bank of India (RBI) Governor SHAKTIKANTA DAS, along with Deputy Governors MICHAEL DEBABRATA PATRA, SWAMINATHAN J, T RABI SANKAR, and M RAJESHWAR RAO, responds to a range of issues during a post-policy media interaction. Edited excerpts:

Will India’s growth and inflation projections be lowered if the Fed cuts rates?
 

Das: We will take into account all data, domestic and foreign, and deal with all emerging situations. Today India has improved its resilience vis-à-vis external shocks quite a bit. The country is far more resilient than what it was earlier. So we will have to wait for the incoming data and deal with the situation.
 

 

There was a study released by the RBI, saying the neutral rate had moved up and also you recently increased the liquidity requirements for banks through the liquidity coverage ratio (LCR). Is there a new normal when it comes to interest rates and liquidity, which is higher than earlier?
 

Das: With regard to the LCR, it’s a draft we have put in the public domain. We will get inputs from all stakeholders, including banks and other experts. Based on those, we will finalise our decision. It will not be correct to say that we have increased liquidity requirements … the matter is still being discussed. We are waiting for the inputs, which will come. 

Rao: The governor has rightly indicated it is a draft circular at this stage and the LCR guidelines were issued in 2014. So it is time for a review, taking into account developments in technology, digitisation, etc. So all those have been factored in and the draft guidelines have been put in the public domain. We will wait for public comments and then take a call on what needs to be done.

Patra: The neutral rate is reflecting a better performance of the economy. The major driver of the neutral rate is potential growth and that has started to rise. So if you factor in the neutral rate, you will see the current level of the policy rate is probably exactly right. 
 

You asked banks to mobilise more household deposits. So is that an indication that deposit rates should go?
 

Das: So far as deposit rates are concerned, it is for banks themselves to decide on these matters, which are part of their commercial decisions. Lending rates and deposit rates are deregulated. All that we have done is to say that the banks should use their branch network and come up with innovative product offers with regard to mobilising deposits.
 

In the statement you have said the disinflation process is uneven due to large and persistent supply shocks mainly due to food prices. Are you happy with supply-side management by government agencies?
 

Das: On supply-side measures there is constant engagement between the RBI and the relevant ministries. The government has been taking measures. I think last year in the Annual Report we gave a list of measures taken by the government to deal with supply-side issues in inflation, including food inflation. There is a long list given out in our Annual Report and the various ministries are attending to the situation. Surprises are there -- sudden rainfall and floods, etc. Even that is being discussed between the RBI and the government and the government has been taking steps.
 

There is a narrative about trading in futures and options affecting household savings. Can the fall in household savings be linked to that?
 

Patra: I would request you look at household savings from a perspective which is a little different. There does not seem to be much exposure to equities in household savings in the composition. There is a churn going on in precautionary savings that were made during the pandemic. Financial savings were high with no avenues to spend … that situation is being drawn down to more normal levels. One aspect of household savings is that. Another aspect is that there is a shift going on from financial savings to physical savings. People are buying more houses, etc. If you take both, household savings have stabilised at around 20 per cent. So I am seeing a return of normalcy in household savings behaviour. 
 

Deputy Governor M D Patra said liquidity conditions reflected the RBI’s monetary policy stance. In the last couple of months we have seen liquidity conditions swing and hence overnight rates are down by 25 basis points. So, how do we read the RBI’s liquidity management in conjunction with the current stance, which has been unchanged all this while?  And are the RBI’s open market operations aimed at draining core liquidity?
 

Patra: Some time ago there was a peculiar liquidity situation where government balances were being built, spending was not happening, and liquidity had tightened. Now we see a better balance in liquidity conditions. The call rate is our operating target. It reflects the monetary policy stance and the stance is one of continuing to withdraw accommodation.