Stable Inflation Is Bedrock for Sustained Growth Says RBI Gov

Mumbai: A stable inflation or price stability is in the best interest of the people and the economy. It acts as a bedrock for sustained growth, enhances the purchasing power of the people and provides a stable environment for investment, the Reserve Bank of India (RBI) governor Shaktikanta Das said on Thursday. Das’ comments come amid calls from central ministers for the central bank to cut interest rates in the upcoming monetary policy review on December 6.

Addressing a high-level policy conference of central banks from the Global South in Mumbai on Thursday, Das speaking on 'Balancing inflation and growth: The cardinal principle of monetary policy', said, “Price stability is just as crucial as growth to enable economic agents to plan ahead, reduce uncertainty and inflation risk premium, encourage savings and investment, all of which provide a boost to the potential growth rate of the economy. Thus, in the long-run, price stability supports sustained high growth. Price stability is also important because high inflation is disproportionately burdensome on the poor,” said Das.

Growth is a fundamental necessity for Global South countries, but it cannot be and should not be at the cost of price stability he said. To achieve higher growth, countries in the Global South need to step up investment in physical and social infrastructure, leverage technology and innovations, and carry out institutional reforms. All these require congenial public policies, including monetary policy, to be growth supportive, while maintaining balance with inflation.

Das who is likely to get a historic third term after his six-year term ends on December 12, said that resilient growth in the Indian economy has provided RBI with the flexibility to focus on inflation, aiming for a sustainable decline towards the target of four per cent.

He stressed the role of fiscal-monetary coordination, particularly for countries in the Global South. Citing India’s experience during the pandemic, he highlighted how close coordination between the RBI and the government mitigated supply shocks.

“Effective fiscal-monetary coordination was at the core of India’s success in navigating overlapping shocks,” he said, adding that this model could serve as a reference for central banks in emerging economies where fiscal constraints often pose challenges.

In its October policy, the MPC chose to leave the repo rate, the rate at which it lends to commercial banks, unchanged at 6.5 per cent marking the tenth consecutive time the rate has remained steady. Interestingly, the policy stance was shifted to neutral from

'withdrawal of accommodation' signaling the central bank's readiness to ease monetary policy if inflation continued its downward trajectory. However with the CPI inflation breaching the 6 per cent mark in October 2024 and expected to exceed the MPC's estimate for Q3 FY2025 by at least 60-70 bps, a rate cut in the December 2024 policy review appears ruled out, despite projection of a sub-7 per cent GDP growth print for Q2 FY2025. The RBI has maintained a status quo on benchmark interest rates since April 2023. The last hike in policy rate was done in February 2023 by 25 basis points to 6.5 per cent in February 2023.