India’s central bank governor Shaktikanta Das said an interest rate cut at this stage would be “very, very risky” and he’s in no hurry to join the wave of easing by global policymakers.
While inflation is expected to moderate, there are “significant risks” to the outlook, Das told Bloomberg News Deputy Editor-in-Chief Reto Gregori at the India Credit Forum in Mumbai on Friday.Inflation and growth dynamics are well balanced, he said, but policymakers need to remain vigilant about price pressures.
The Reserve Bank of India has kept its key interest rate unchanged for almost two years, although signaled last week it may be preparing to ease after changing its policy stance to neutral. That comes as central banks around the world follow the US Federal Reserve in reducing interest rates, with Thailand the latest to surprise with a cut this week.
Responding to a question about global central bank easing, Das said “we will not miss the party, we don’t want to join any party.”
Indian bonds extended losses after his comments, with the 10-year yields rising as much as 4 basis points — the most in two weeks — to 6.82%.
Das pushed back against some analyst views that the RBI was “behind the curve” in cutting rates. Market expectations were aligned with the central bank actions, he said, citing last week’s policy decision that was predicted by most economists.
“The governor’s comments show rate cuts may not happen before February, or it may get even delayed if actual inflation does not align with the target,” said Gaurav Kapur, chief economist at IndusInd Bank Ltd. “Given the comfort on growth, the monetary policy committee can continue to focus on price stability.”
Das’s comments on Friday were his first public reaction since data this week showed inflation accelerated more than expected in September. Das said October’s inflation rate will remain elevated before moderating in November.
That’s made the timing of a rate cut uncertain, with several economists pushing out their rate-cut forecasts from December to next year.
“A rate cut at this stage can be very premature and can be very, very risky,” Das, 67, said. “When your inflation is 5.5% and your next print is also expected to be high, you can’t be cutting rate at that stage.”
Not joining the party
Das has repeatedly said the RBI wants to see inflation settling around the 4% target level on a durable basis before considering a cut. Deputy Governor Michael Patra has indicated that won’t happen until the fiscal year that starts April 1.
“We would rather like to wait and watch,” Das said. “If we want to join the party we want to do it on a durable basis. When we have confidence, inflation figure is durably aligned with our target 4% that may be a situation where we can think of” easing, he added.
Future monetary policy action will depend on incoming data as well as the inflation outlook for the next six months to a year, the governor said.
Das’s relatively hawkish comments come against the backdrop of recent evidence showing India’s world-beating growth is starting to taper off and company profits are weakening.
The RBI is more bullish about growth prospects, though, compared with the market consensus and even the government. Das last week kept the central bank’s forecast for the current fiscal year unchanged at 7.2%, while the government’s own projection is a more subdued 6.5%-7%.
On the currency, the governor on Friday reiterated the RBI isn’t trying to manage the exchange rate and the rupee has been depreciating in response to the overall movement of the dollar.
The RBI is building its foreign exchange reserves as a “safety net” to protect against any instability from volatile capital flows, he said. The central bank has no specific target for building reserves, he added.
India’s foreign exchange reserves are the world’s fourth largest, recently crossing the $700 billion mark as the RBI soaks up dollar inflows to keep the rupee stable.
Contract extension
A long-time bureaucrat, Das, took the helm at the central bank in December 2018 after his predecessor Urjit Patel resigned unexpectedly. Das’s second term contract comes to an end in December this year, and neither the government nor Das have given any indication whether he will remain in the post after that.
Asked about his future, Das was typically coy, saying he’s preoccupied with his current work at the RBI and hasn’t given any thought about whether he’ll stay on in the position if he’s offered another extension.
“At the moment, that is certainly not in my mind,” he said. The central bank must finalize a few draft guidelines, and announce an interest rate decision before Das’s current term comes to an end in early December.
“Already my table is full, so I have no time to really think of what next,” he said. “We will see.”

NEW DELHI: The Reserve Bank of India’s (RBI) governor Shaktikanta Das on Friday said that interest rate cut at this stage will be ‘premature, and very, very risky’.
Speaking at the fireside chat at the India Credit Forum event in Mumbai by Bloomberg, governor Das warned against any premature interest rate cuts when inflation risk is still there. RBI still maintains a growth forecast of 7.2 per cent for FY25 and expecting the inflation to moderate by November.
“We are not behind the curve. Indian growth story remains intact. India is poised to grow at 7.2 per cent. Growth is steady and resilient, inflation is moderating with certain risk, so a rate cut at this point will be premature and very, very risky,” Das said
While inflation is expected to moderate, Governor Das also said that there are ‘significant risks’ to the growth outlook.
During the October monetary policy announcement, RBI had maintained the status quo on rate and changed stance to ‘Neutral’ from ‘Withdrawal of Accommodation.’
“There can be differences of opinion, but the broad expectations of the market are quite aligned with our policies,” he said, countering criticisms that the RBI may be behind the curve in managing the economic outlook.
He further elaborated on India’s overall economic resilience, highlighting the country’s stable macroeconomic fundamentals and strong confidence from international investors. According to Das, these factors have helped maintain the stability of the Indian rupee, which has depreciated only modestly in response to global market movements.
He assured that while private credit poses global risks, India’s regulatory framework for non-banking financial companies (NBFCs) ensures stability.
Das’s remarks come amid broader discussions about India’s economic momentum, with the nation recently overtaking China in population and maintaining a faster economic growth rate than its neighbour.
He emphasized that India’s growth story remains intact, even as the country navigates inflationary pressures and global economic challenges.
Answering to the question on Private credit, the RBI governor further said that it is posing certain risks to every central bank but there is no danger for India.
“So far as India is concerned, it’s not a problem at the moment in the sense that private credit in the Indian context is mostly offered by the non-banking financial companies which are regulated by the reserve bank,” he added.
Reflecting on the RBI’s contributions over the past few years, Das highlighted several key initiatives that have strengthened India’s financial sector.
He pointed to the RBI’s proactive stance in regulating the banking sector, stating that the RBI is maintaining a close vigil over the credit markets and taking action whenever necessary.
The governor underscored the RBI’s role in enhancing the stability of banks, reducing the gap between credit and deposit growth, and supporting the rapid rise of non-banking financial companies (NBFCs), which now account for roughly 30 per cent of India’s credit market.
Pointing out regarding KYC issues, Das said, “I think there are some complaints about KYC related issues, know your customer related issues and knowing the, you know, knowing the ultimate, the beneficial ownership of investments. Now, this is not something which is our creation, but this is a FATF requirement.”
KYC norms are essential for ensuring that funds entering India are from legitimate sources, given the complexities of global financial markets.
“We get often representations about issues relating to procedural issues, relating to know your customer. That is the KYC-related issues. And that is being addressed not just by us, but also by the securities market regulator, particularly for foreign portfolio investors. It’s more to do with the securities market regulator, the SEBI, which is dealing with it,” he added.

Catch all the Business News, Politics news,Breaking NewsEvents andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.

MoreLess

The influential American economist of Indian origin said it was possible for India to have a long period of strong growth and become a developed economy, while many developed nations are vulnerable to geopolitical turmoil.

“We will definitely make it. In contrast, many of the developed economies are not sound at all, as they are more affected by geopolitical stress points like the Russia-Ukraine conflict. They are also going to get involved in what happens with China in the Far East. So, we can no longer count on the western powers to remain ahead.” 

Also read | Prudent for global biz to diversify supply chains: FM

“We, on the other hand, are not involved in such events at the moment. Therefore, if we keep up where we are now in terms of our current outstanding rate of growth and everything that finance minister Nirmala Sitharaman and Prime Minister Narendra Modi talked about, if that keeps up, we will be way ahead of the West,” Bhagwati said.

“So I am optimistic on that ground.”

Bhagwati was referring to Modi’s pledge last week to carry out structural reforms and inclusive growth, where he emphasized that the first three months of the National Democratic Alliance government’s third term in office was marked by a strong commitment to jobs and skills, sustainable growth, innovation, infrastructure building, quality of life and rapid growth.

Sitharaman has also expressed confidence that there would be “the steepest rise” in living standards in India in coming days.

The finance ministry had in its monthly economic review for August noted that trends indicated a strong foundation of macroeconomic stability in the country with steady growth, investment, employment and inflation trends, but flagged continued uncertainty in global economic prospects and advised monitoring of trends like the buildup of automobile inventory and slowing of fast-moving consumer goods in urban areas in the June quarter. Policymakers also are keeping an eye on fears of a recession in advanced economies.

Also read | ‘R&D support can deepen India’s share in global supply chains’

Bhagwati believes India should act fast and get a bigger share in global supply chains.

“With the global supply chain involving China getting broken, instead of moving in, we allowed other countries to break into it. Bangladesh was one of them. We have to make sure that we build up our own supply chains. We are thinking about it, but we have to move fast because if other supply chains get established, then it is all the more difficult to break into them,” he said.

To get a larger share of global trade, India also has to be more competitive and lower tariffs will help, he said. “Imports and exports are not independent; they are linked together. For exports to work and to build supply chains, we have to be able to import raw materials and components which make our supplies more competitive. If you suddenly run out of components, who will trust your supply chain? Certainty of supply chain is a very critical aspect. We have to be very smart,” Bhagwati said. Lower tariffs enable countries to import more and feed their supply chains, he said.

“Sometimes in the political economy, we see pressure getting built up to lower tariffs,” Bhagwati said, referring to former US president Donald Trump’s description of Indian customs tariffs as high. Trump, who had described India a “tariff king” in his first term in office, said in September India was an “abuser” of tariffs.

Last year, India reduced customs duty on several products imported from the US, including apples, almonds, lentils and chickpeas. That was part of removal of retaliatory duty imposed on US exports in 2019 after the US raised import duty on certain items.

Read more | India, US working on $1 bn multilateral financing for clean energy supply chain

“We have to be active with the World Trade Organization to make sure the things of interest to us remain free from trade tariffs and restrictions. And I think we are aware of that,” Bhagwati said.

The only way India can take full advantage of its demographic dividend is by attracting investment in new productive capacity in both manufacturing and services, which can employ people, he said.

“There are two ways to do it. One is to invest yourself and the other is to invite foreign capital. In our case, foreign capital is willing to come in and create jobs because we have skilled manpower… We have to maximize that advantage and try and say look, ‘We will give you good terms and so on, come and invest and use our manpower,’ because the skilled manpower also then gets doubly trained and get additional skills. Thus, it creates the manpower resources for more investments to come in. It has a virtuous, snowballing effect.”