Indian economy not trapped in the 'Chakravyu' as the RBI looks beyond the Rule Book

“There are disruptions taking in the realm of globalization. But the world would recalibrate & readjust,” Shaktikanta Das.

While the RBI Governor Shaktikanta Das expressed his worries on the uncertainty and challenges that exist today in the wake of the geopolitical tensions, he asserted that going forward there is abundant liquidity to enable the credit system to function productively and to meet the production requirements of the economy.

At a recent event of CII, the Governor elucidated the path of monetary policies taken so far however he categorically resisted commenting and commit on the likely road map ahead (which is the subject matter of the Monetary Policy Committee) but nonetheless he threw light on the stance of RBI will continue to be accommodative and pro-growth.

Das claimed that RBI has resisted all the temptation of reversing (tightening) the monetary policy, whenever the inflation surged since they could clearly see that the inflation would moderate and it did moderate.

“RBI is supportive of growth, price stability and inflation check”, maintained Das. His confidence in the ability of the monetary policy to tackle any spillovers are supported by the high-frequency indicators which the RBI closely monitors. He stated that barring two-wheelers, trucks and few other segments, most of the indicators were in green( positive), indicating that the Indian economy is well poised and the possibility of stagflation is far-fetched.

Interestingly, the consumer price index-based inflation rate hit an eight-month high in February at 6.07%. The RBI has projected a 4.5% inflation rate for the next fiscal year. According to Das, RBI’s inflation target of 4% (with a flexible band of plus-minus 2%) provides ample flexibility to MPC and with all the uncertainty and volatility, the prospects are nowhere worrisome.

In contrast, the US Fed Chairman Jerome Powell vowed tough actions (rate hikes) until inflation comes under control, given the US inflation target (2%) left far behind the current level of 7.9 (breaching 40 year high).

The confidence exuded by the Governor in the CII event was supported by the below-mentioned numbers:

Total Liquidity Support given by RBI in the past 2 years – Rs 17 lakh crore.

Of the above Rs 12 lakh crore availed by banks of which Rs 5 lakh crore already come back.

CAR (Capital Adequacy Ratio) at the system level is 16%; Gross NPA at an all-time low of 6.5% and Provision Coverage Ratio at 69%: all indicating robust health of Indian Banks.

Forex Reserve stands at $622 billion plus $55 billion in forward market: sufficient to finance the current account deficit (1.3% of the GDP for July- Sep quarter).