 "Reserve Bank of India (RBI) Governor Shaktikanta Das with Deputy Governors Swaminathan Janakiraman, Michael Debabrata Patra, M. Rajeshwar Rao and T. Rabi Shankar (Photo: PTI)")
Reserve Bank of India (RBI) Governor SHAKTIKANTA DAS, along with Deputy Governors MICHAEL DEBABRATA PATRA, SWAMINATHAN JANAKIRAMAN, T RABI SANKAR, and M RAJESHWAR RAO, respond to a range of issues during a post-policy media interaction. Edited excerpts:
RBI Governor Shaktikanta Das’ initial remarks highlight 9 points
1. Domestic economic activity continues to be strong. We expect real gross domestic product (GDP) growth of 7 per cent in 2024-25.
2. Consumer Price Index (CPI) inflation is moderating with intermittent interruptions and spikes. We have to remain vigilant about the incoming data and the outlook. Our endeavour to achieve 4 per cent inflation on a durable basis has to continue.
3. Global markets are front-running central banks in anticipation of policy pivots. But central banks remain apprehensive and await a more durable alignment of inflation with the targets.
4. Liquidity will be actively managed by the RBI.
5. Our multi-pronged, proactive, calibrated policies have worked well to maintain and strengthen financial stability.
6. Systemic, sectoral, and institution-specific signs of stress are being proactively monitored and acted upon wherever necessary.
7. Good governance, robust risk management, sound compliance culture, and protection of customers’ interests are the hallmarks of RBI’s approach to the safety and stability of the financial system and individual financial institutions. Regulated entities must accord the highest priorities to these aspects.
8. The external sector of the economy remains resilient. The current account deficit is expected to be eminently manageable.
9. The exchange rate of the rupee has remained stable.
You mentioned that the transmission of 250 basis points (bps) is continuing. Bankers say that deposit rates have already gone up by 200-250 bps, and lending rates have also gone up. What, in your mind, is the actual transmission that has not happened, and how much is that? What is the benchmark you are looking at to conclude that transmission has happened?
Swaminathan J: The rates on the deposit side reset quickly, and they are passed on even quicker, as we have seen that deposit rates have almost played out.
On the lending side, rates take much more time to pass for two critical reasons in our assessment. One is that the proportions of loans that are benchmarked externally, which we call EBLR (external benchmark lending rate) loans, are still less than 50 per cent.
In the case of other benchmarks like MCLR (marginal cost of funds based lending rate) base rates or fixed-rate loans, they take time to transmit.
Banks’ anxiety about maintaining their market share in the incremental credit also adjusts their margins, not to lose their market share in the incremental credit, which also impedes a complete transmission in terms of effective interest rate.
Next year’s growth is projected at 7%, while nominal GDP by the government is projected at 10.5 per cent. Effectively, that means inflation will be 3.5 per cent next year. Are you being too optimistic about growth, or the government is being modest in its projection?
Michael Patra: My understanding of this is that what goes into nominal GDP is not CPI inflation, it’s the GDP deflator, and it is always a weighted combination of CPI and Wholesale Price Index (WPI). Now WPI has been in deflation for most of this year, and it is just emerging out of deflation, so that must be the reason.
Was RBI late in acting against Paytm Payments Bank? Why did RBI not consider appointing a director on the board of Paytm when it found out about the compliance issue?
Shaktikanta Das: We give sufficient time to every regulated entity that is supervised by the RBI to comply with the regulatory requirements. If everything had been compliant, why should we act? RBI is a responsible institution.
Swaminathan J: We make our assessment of the scale and proportion of the issue. A one-size-fits-all kind of solution may not work in such a situation.
You said your stance is with respect to the rates, and there is incomplete transmission. Are you making elbow room for liquidity operations, so that open market operation purchases won’t be seen out of sync with the stance?
Shaktikanta Das: What we have attempted to do is to clarify and state that, do not read the stance of the monetary policy in terms of excess liquidity prevailing or deficit liquidity prevailing.
Liquidity plays a secondary role in supporting monetary policy transmission. We try to keep the liquidity at a level wherein the overnight call rate, the operating target of the monetary policy, remains around the repo rate.
In the first part of this year, due to various exogenous factors, there was a lot of liquidity. So we conducted repo auctions, but the market took time to adjust. Individual banks make their analysis of the liquidity situation, and that analysis by banks also varies within a day.
Banks and markets take time to adjust to the evolving liquidity situation. So far as RBI is concerned, we will remain active, we will remain nimble in our liquidity management, and what instrument we will utilise will depend on the prevailing situation.
