After the Reserve Bank of India (RBI) decided to keep the repo rate unchanged in April at 6.5 per cent, the central bank governor Shaktikanta Das on Wednesday said that pausing the interest rate hike is not in his hands and it depends on on-ground situation. “Pausing rate hikes is not a decision which is entirely in my hands because I am driven by what is happening at the ground level,” he said at the Confederation of Indian Industry Annual Session (2023). He also noted that it was heartening to see that Indian industries used the current situation to strengthen its resilience.
“War against inflation not over,” says RBI Governor
While maintaining that the RBI is planning to let the impact of rate hikes play out, Das said, “The next inflation print could be lower than 4.7 per cent. See likelihood of FY23 GDP being higher than 7 per cent forecast earlier; given performance of lead indicators, RBI will stick with FY24 GDP forecast at 6.5 per cent, although IMF has a lower forecast of 5.9 per cent.”
Talking about inflation, Das said that while the “war against inflation is not over”, inflation is moderate but there is no room for complacency. “We assumed inflation would be moderate in February, but then we had the big surprise from the Russia-Ukraine war,” he said, adding that the surprise MPC meeting after the war was “the right decision”.
“Last MPC, we gave you a positive surprise, by giving a pause because our assessment was that we have done a 250 bps increase. Let’s allow monetary policy to play out and transmit. We monitor the transmission on the credit side, liability side as well,” he said, while adding that the situation is extremely fluid and highly dynamic.
El Nino impact
With a more than 80 per cent chance of El Nino conditions developing during May-July (according to NOAA), a below normal southwest monsoon in India can not be ruled out. Analysts are of the view that although it is highly likely that India will experience El Nino, the severity of its impact on India’s food grain production remains uncertain. And it could have an impact on various fronts, including inflation, interest rates, low industrial production (due to water availability), and lower tax collections, which could impact the deficit. On this, the RBI governor also said that the central bank will have to see how the El Nino plays out and any further action on interest rate hike will have to take this into account.