New Delhi: India’s central bank governor Shaktikanta Das says 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 last Friday.
He added that the central bank wasn’t “behind the curve”, and it needs to remain vigilant about price pressures.
The Reserve Bank of India (RBI) has kept its key interest rate unchanged for almost two years, although it signalled 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 (Fed) in reducing interest rates, with Thailand the latest to surprise with a cut last 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 four basis points to 6.82%.
While most economists had predicted the RBI would begin lowering rates in December, last week’s hotter-than-expected inflation data prompted economists to push out their rate-cut forecasts 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 rates at that stage.”
October’s inflation rate will remain high, the governor said, and will then likely moderate in November.
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,” he 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.
Das’ comments last Friday were his first public statements on inflation since the worse-than-expected data, and 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 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% to 7%. — Bloomberg
