With growth steady, policy must focus on inflation: RBI Governor Das

Reserve Bank Governor Shaktikanta Das on Friday said the monetary policy has to be "clearly and unambiguously" focused on inflation in an environment like the current one, where growth is steady.

Amid a debate around neutral rates, Das said "theoretical and abstract concepts" as arrived at are based on a person's judgment and cannot determine the policy in the real world. It can be noted that the RBI has been steadfastly maintaining the status quo on interest rates, and there is increasing dissent among some members of the rate-setting panel who are in favour of rate cuts to promote economic growth lately. Replying to those who flag the impact on growth because of the elevated interest rates, Das said that the growth has been robust even with the current interest rates and added that RBI is optimistic that its 7.2 per cent real GDP expansion estimate for FY25 is being achieved.

 

Moreover, the nowcast team is pointing towards a 7.4 per cent growth in the June quarter as against the monetary policy committee's expectation of 7.3 per cent, he said, adding that the momentum will continue into the Q2 as well.

In the last three years, the average growth of India has been 8.3 per cent, he said.

"Growth is remaining steady. Now, we have to focus clearly and unambiguously on inflation," he said, speaking at an event organised by the Financial Express here.

Drawing from his favourite analogy of the elephant in the forest, wherein he compares the animal to inflation, Das said the elephant is "grudgingly" moving towards the forest, which is the 4 per cent inflation target.

The movement down to the target is unidirectional, but there are pauses taken by the distracted 'elephant' who is moving slowly towards the 'forest', Das said.

Das said the RBI is looking specifically on the food inflation front, and also if there is a spillover of - Wholesale Price Inflation (WPI), which moved up to a 16-month high for June into consumer price inflation.

"It is the food inflation which is drawing our greatest attention because that is actually giving the push to the headline numbers because core and fuel inflation are quite low. Food inflation is the worry," he said.

The Governor also explained that the RBI's target is inflation and added that growth has to be kept in mind.

"The target is inflation, not a neutral rate of interest. A neutral rate of interest is subject to a lot of uncertainty, it depends on your assessment of potential growth versus my assessment of potential growth or versus somebody else's assessment," he said.

"Neutral rate etc are theoretical, abstract concepts that cannot determine policy in the real world," he added.