RBI focused on inflation once growth and economic activity were at pre-pandemic levels, says guv Das
The Reserve Bank of India acted proactively to deal with the shock of the Covid pandemic, the Ukraine-Russia war, and took calibrated measures to ensure that the shock was absorbed without destabilizing growth, said the Governor Shaktikanta Das during the FE Modern BFSI summit. During the pandemic, the RBI MPC consciously decided to tolerate inflation above 4%, up to 6% as the situation demanded it. “If we had started raising rates earlier, what would that have done to growth in 2021-22? Would that have prevented inflation from skyrocketing? No,” Das said. “We waited for economic growth to reach a stage where it was safe to withdraw cash,” he said.
Responding to a question whether RBI would now raise the interest rate to the pre-pandemic level of 5.1%, Shaktikanta Das said that RBI is in step with the needs of the economy. He mentioned that during the onslaught of the pandemic when the first nationwide lockdown was announced, RBI’s aim was to spur growth and ensure that financial markets function as usual. Meanwhile, even when inflation broke above the 6% mark, RBI looked beyond it as it considered the spike in inflation to be transitory at that time. However, just recently, he started to consider persistent inflation and therefore opted for the withdrawal of cash. Now that growth, economic activities have returned to pre-pandemic levels, inflation has become the priority.
Responding to concerns over liquidity injections by the RBI, Das pointed out that all liquidity injections announced by the RBI come with a sunset provision of an end date to ensure that none of the measures remain unfulfilled. indefinite period. However, in the face of liquidity that entered the system due to multiple waves of covid, the start of the war in Europe was a challenge and VRRR, SDF managed to do so. Das assured that out of the 12 lakh crore injected by the RBI during the pandemic, 5 to 5.5 lakh crore has already returned, while the remaining 7 lakh crore is still there. “We’re confident we’ll get out of this quickly and have a soft landing,” he said.
When asked if RBI was considering borrower-centric regulation, Das said that in the case of NBFCs, the regulator had already introduced ladder-based regulation. Also, in the case of MFIs, they have recently introduced activity-based regulations that are neutral between entities. For a microfinance loan, the regulations are now uniform. Thus, the lender has already moved in a direction where regulation will benefit microfinance borrowers. RBI will refine its regulations to address all customer challenges and concerns, RBI guv said.