The Reserve Bank of India (RBI) is committed to keeping inflation under control, Governor Shaktikanta Das said on Friday, as the central bank maintained its policy rate for the 11th consecutive time. The move came despite growing calls for a rate cut to support economic growth.
Speaking at a press conference following the latest policy announcement, Das acknowledged that the balance between inflation and growth had become "unsettled". The country’s GDP growth for the September quarter fell to 5.4%, well below expectations, while inflation rose above 6% in October.
"Our effort is to keep inflation on a tight leash," Das said, referring to the challenges posed by rising prices.
The RBI’s revised GDP growth forecast for FY25 is now 6.6%, down from the previous 7.2%. Despite the dip in growth, Das stressed that there was no room for a "kneejerk" reaction from the central bank.
"Any action will be a timely one taken only after considering the evidence at hand," he said, emphasising that the RBI’s approach would be cautious and well-paced.
Das also noted that the central bank's flexible inflation targeting framework needed to be preserved. "The credibility of the inflation targeting regime must be maintained," he said.
On the outlook for growth, Das expressed confidence that the second half of FY25 would see better performance. He attributed the current slowdown partly to reduced government capital expenditure ahead of elections. "Growth will revert to its earlier trend once the ongoing correction is over," he added.
Deputy Governor Michael Patra highlighted a lack of investment as a key reason for the slowdown. "In manufacturing, the biggest issue is the slump in sales growth. When sales growth is down, companies do not want to invest in new assets," he explained. This reluctance to invest has contributed to the current economic slowdown and rising inflation.
In a move aimed at boosting liquidity, the RBI reduced the Cash Reserve Ratio (CRR) by 0.5 percentage points, which will inject an additional ₹1.16 lakh crore into the banking system. Das described the CRR cut as a "normalisation" after an increase in 2022, which had been a temporary measure.
Looking ahead, Das predicted that liquidity could remain tight in the coming months due to tax payments, GST outflows, and seasonal agricultural pressures.
The central bank also raised interest rate caps on foreign currency deposits from the Indian diaspora to attract more capital flows.
Regarding India’s foreign exchange reserves, Das reassured the public that they remain robust despite recent declines. "Our forex reserves are strong, and there is no concern on this front at all," he said.
The RBI's policy stance reflects its continued focus on managing inflation while supporting growth, even as the economy faces challenges on multiple fronts.
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