Seven Key Takeaways From RBI Governor's Speech Ahead Of Additional MPC Meet

Speaking ahead of an additional meeting of the Monetary Policy Committee after missing the inflation target for nine straight months, Reserve Bank of India Governor Shaktikanta Das said a tighter policy earlier this year would have been counterproductive for the economy.

Das, in his speech at the Federation of Indian Chambers of Commerce & Industry's FIBAC Conclave, defended the MPC's approach.

Here are the seven key takeaways from the governor's speech:

Can't Disclose MPC Letter Go Government

RBI Governor said he doesn't have privilege or authority to share MPC's letter to government explaining its action against inflation. The letter will become public in due course as the parliament comes to know about it, he said.

4% Median Inflation Target Necessary

On calls to raise inflation target, Governor Das said the RBI's research shows that the median point of 4% inflation is necessary for sustainable growth.

Couldn't Have Tightened Earlier

Tightening monetary policy early to curb inflation at the start of 2022 would have proved very costly for the citizens of India, he said. “Wanted the economy to safely land in the turbulent waters through which the economy had been sailing through during Covid,” he said.

Growth Momentum Sustained

The growth momentum has sustained and inflation is expected to moderate, according to Das. The financial sector is stable and resilient, having withstood multiple shocks, he said, adding that the balance sheets of banks and corporate sector are looking very robust.

Liquidity Stress To Be Short-Lived

The liquidity stress witnessed in October is likely to be transitory, he said. As the festive season rush ends, government spending goes up, FPI inflows become net positive, and deposit growth rises, the liquidity situation will return to normalcy, the RBI governor said.

Rupee Has Fared Better Than Peers

Indian rupee depreciated by 8% from Apr.1-Oct. 31. In this time, U.S. dollar appreciated by 13%, according to Das. All major currencies, barring a few, have depreciated more than the rupee, he said. His advises not to go by the headline that the rupee is depreciating; need to look at it contextually, in a granular manner.

Fed Can't Tighten Endlessly

The U.S. Fed's targeted terminal interest rate is anybody's guess. But the Fed can't tighten monetary policy endlessly, Das said. When tightening is over, the tide will surely turn, he said, adding that capital flows to India will resume and external financing conditions will ease.