The Reserve Bank of India (RBI) Governor, Shaktikanta Das, has said the need for a cautious approach to interest rate cuts, warning that India cannot afford another surge in inflation.
In the minutes of the October Monetary Policy Committee (MPC) meeting, Das emphasized that while the central bank maintained the key interest rate, it shifted its policy stance to “neutral,” indicating a potential for future rate cuts as signs of an economic slowdown emerge.
“At this stage of the economic cycle, having come so far, we cannot risk another bout of inflation. The best approach now would be to remain flexible and wait for more evidence of inflation aligning durably with the target. Monetary policy can support sustainable growth only by maintaining price stability,” Das said at the Monetary Policy Committee meeting this month, according to the minutes of the meeting .
Das pointed out that high-frequency indicators suggest steady economic activity during the second quarter of FY25, supported by increased government spending and rising corporate investments. He also highlighted that private sector investments are gaining momentum, presenting a positive outlook for India’s economic growth.
However, the Governor expressed concern over persistent inflationary pressures, particularly in food prices, which continued into early October. This could result in elevated inflation for the month, though he noted that the outlook for food inflation is improving due to favourable prospects from the kharif and rabi crop seasons.
On the broader inflation front, Das indicated that core inflation is expected to remain stable in the absence of any major cost-push shocks. He projected that headline inflation would gradually align with the central bank’s 4% target towards the end of the year and into early 2025.
Members concur
Other MPC members echoed similar concerns. External member Saugata Bhattacharya noted that while the battle against inflation is ongoing, there is increasing confidence in achieving the Consumer Price Index (CPI) target.
RBI executive director Rajiv Ranjan said, “Considering the uncertainties still prevailing on the global front, a cautious data dependent approach with regard to further course of monetary policy actions is called for. Between now and December, we will have greater clarity on some of the uncertainties – US elections, geopolitical risks and Chinese fiscal stimulus and its impact on global commodity prices.”
RBI Deputy Governor Michael Patra cautioned that easing monetary policy too quickly could undermine the progress made on controlling inflation.
“Reducing restraint too quickly may negate the progress made on disinflation. Hence, a gradual wait-and-assess approach to removing policy restraint in terms of the policy rate remains appropriate as long as inflation is not lastingly close to its target,” Patra said. He expressed optimism about a recovery in consumption during the festive season, further supported by strengthening rural demand and increased government capital expenditure.
