One single wrong move against inflation could be disastrous, says RBI chief

Mumbai: The Indian economy is at the threshold of a major structural shift, moving towards an 8% growth rate on a sustained basis, Reserve Bank of India governor Shaktikanta Das has said, warning that any wrong monetary policy move could hurt growth.

In a speech at the Bombay Chamber of Commerce in Mumbai recently, Mr. Das defended the RBI monetary policy committee's (MPC) decision to keep the 4% inflation target and reasoned why the MPC could not afford to make any policy error over inflation. 

The MPC earlier this month kept the policy interest rate unchanged at 6.5% for the eighth consecutive time, citing inflationary concerns.  

“We have to navigate the path of inflation with a clear and unambiguous focus and commitment to bring down inflation. There cannot be any distractions at this stage. Any distraction will impact growth. In the game of chess, if you make one wrong move, you can lose the game. In the battle against inflation, one single wrong move can just throw you off track, and coming back on track will be costly,” he added.

Economic insights

Das assured that the Indian economy is not slowing down and there is clear evidence of private sector capex picking up, especially in sectors like cement, and steel. He also said that the economy needs to be driven by multi-sectoral growth.

The Indian economy expanded by 8.2% in FY24, and the RBI expects the country's GDP to grow by 7.2% in the current financial year.

Das also said that a moderate level of current account deficit (CAD) is desirable. India recorded a current account surplus of $5.7 billion or 0.6% of GDP in the March quarter, the first time in ten quarters. In the year-ago period, CAD stood at $1.3 billion or 0.2% of GDP, and $8.7 billion or 1% of GDP in the three months through December 2023.

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