Inflation Eased From Peak But Distance Has To Be Covered, Says RBI Governor

While India's growth outlook remains strong and inflation is moderating from its peak, there is still a distance to be covered and the central bank cannot afford to look the other way, said Reserve Bank of India's Governor Shakitkanta Das.

"Inflation has moderated from its peak of 7.8% in April 2022 into the tolerance band of +/- 2%, around the target of 4%, but we still have a distance to cover and cannot afford to look the other way," Das said at the Future of Finance Forum 2024, organised by the Bretton Woods Committee on Friday in Singapore.

For the current financial year, the RBI has projected real GDP growth at 7.2%. This growth outlook reflects the underlying strength of India's macro-fundamentals, private consumption and investment. This growth is also supported by an environment of macroeconomic and financial stability.

On inflation, the central bank's projections indicate that it is likely to ease further from 5.4% in the fiscal ended March to 4.5% in the current financial year and 4.1% in 2025-26.

Synchronised monetary policy tightening in the last couple of years across the globe is gradually giving way to monetary policy divergence in 2024, Das said on 'higher for longer' interest rates.

"Market expectations of rate cuts are now regaining momentum, especially after indications of a policy pivot from the US Fed, but the adverse spillovers from the 'higher for longer' interest rate scenario remains a contingent risk," he said.

Global macroeconomic outlook is judged to be balanced, but it can weigh on the downside in the near-term, according to the governor.

Das laid out several risks and opportunities to the global macroeconomic outlook.

The first risk is the momentum of global disinflation is slowing, which is warranting caution in easing monetary policy, he said. High levels of debt, persisting geopolitical tensions, its impact on volatility in asset prices, uncertainty over trade policy and climate change are getting increasingly interdependent.

"The need of the hour for policy authorities and central banks is, therefore, to remain agile and craft appropriate forward looking measures and structural changes to overcome the risks," Das said.

He also outlined risks to global financial stability, such as stretched valuations, sudden shocks, impact of a strong dollar on emerging market economies, proliferation of non-bank institutions and booming private credit space. The stress in the global commercial real estate sector also needs to be watched closely, Das said.

As risks and challenges are navigated, there are huge opportunities ahead, such as capitalising on robust fiscal, monetary, and financial policy frameworks, to exploit the potential to attract investment and accelerate sustainable growth, he said.

Addressing trade policy uncertainties more forcefully, leveraging the digitalisation channel, providing climate-smart financial solutions are some of the opportunities that Das mentioned.