In current times, monetary and fiscal policies cannot be a ‘question of either or’: Shaktikanta Das

For the 10th time in a row, RBI’s Monetary Policy Committee (MPC) on Thursday left the key rates unchanged — the repo at 4 per cent and the reverse repo at 3.35 per cent — and decided to continue with the accommodative policy stance.

Underlining that growth is uneven and needs to be nursed some more, Das said that “monetary and fiscal policies cannot be a question of either or, but must go in tandem with each other, especially in times like what we are going through the past two years.”

To a query on whether the central bank has fallen behind the curve of its peers, Das said, “we are very clear of our stance and our assessment is very much in sync with our evolving domestic situation which is very different from those central banks which have abandoned loose money policies.

“Our assessment and the resultant policy move are fully-geared by the evolving domestic inflation and growth scenarios”.

Many central banks across the world are moving towards a hawkish monetary policy approach amid rising inflation.

Noting that maintaining price stability is “upper most in our mind”, Das said that at the same time, it was mindful of the need to continue to support growth so as to make it more even and sustainable. “That means in our view, we aren’t behind any curve as our domestic factors are different”, Das said.

Talking to reporters at the customary post-policy presser, Das said that growth momentum is definitely positive.

“At least I see a target for fiscal consolidation by FY25, at least going by the Budget speech. So, they are on a road map and so is RBI. We are on a well-coordinated action plan on our respective targets. Definitely the fiscal part has a larger role to play but we also have to understand that RBI also has a key role to play in this,” Das said.

Emphasising that fiscal and monetary policies have to move in perfect coordination, he pointed out that the uneven growth signals are what have made us project a lower 7.8 per cent expansion of the economy next fiscal.

Regarding including government bonds in global bond indices, Das said, “our approach has been very calibrated as the matter has both negatives and positives”.

“While it can get more inflows (projected to be as high as USD 30 billion annually), it can also lead to too much volatility, which will offset all the gains from inflows. Because more than 90 per cent of the government debt is rupee-denominated and only 5-6 per cent is in forex. That’s why we are taking a very calibrated approach,” he said.

On whether RBI will expand its balance sheet to manage the huge government borrowings, Das and Deputy Governor Michael Patra said RBI has a very calibrated and well-telegraphed approach on monetary policy, policy stance and yields management and “we don’t like sudden changes and surprises”.

Admitting that the yields went up and are still ruling high since the Budget, Das said perhaps the market was expecting that inflation would edge higher but “we have given our inflation projection today which is well manageable and I hope the markets takes that into consideration”.