Change in stance doesn’t mean that the next step is a rate cut in the very next meeting: RBI Guv Das

Reserve Bank of India Governor Shaktikanta Das on Wednesday said a change in stance doesn’t mean that the next step is a rate cut in the very next meeting.

The six-member monetary policy committee (MPC), which met from October 7-9, had decided unanimously to change the stance to ‘neutral’ from ‘withdrawal of accommodation’. However, it kept the repo rate unchanged at 6.50 per cent by a majority of 5 out of 6 members.

Referring to his October monetary policy statement, which very clearly stated that retail inflation prints for September and October inflation prints are expected to be higher, Das said: “The September inflation print came at 5.5 per cent. The October CPI inflation number is going to be again very high, perhaps higher than the September number.”

The Governor observed that the monetary policy stance was changed because the MPC felt that growth and inflation were well-balanced.

“I also said there are significant upside risks to inflation (I repeat significant risks). So, I emphasised the phrases “significant risks” and “I repeat”.

“I had said why we see the risks – because of continuing geopolitical conflicts, geo-economic fragmentation, the weather-related risks and the commodity prices going up….we had flagged these risks,” Das said at a BFSI summit organised by a business publication.

The Governor noted that the message from MPC was very clear. The committee has to be very cautious about its future course of action.

Das underscored that: “It should not be assumed that we have done this (changed the stance), so, therefore, the next step is a rate cut. A change in stance doesn’t mean that the next step is a rate cut in the very next meeting (in December). It is not so.”

“..Like inflation expectations, I think, perhaps market expectations sometimes works to pressurise central banks. But we are under no pressure to go for the next step. The next course has to be taken very carefully.”

Growth: positives outweigh negatives

The Governor observed that the economic data that is coming in is now mixed. In the high-frequency indicators, which RBI monitors, it is only the IIP numbers and FMCG sales in the urban sector that have considerably moderated.

“But, other than that, the GST, e-way bills, toll collections, air passenger traffic, steel consumption…automobile sector did exceedingly well in October…

“So, overall, therefore, if you see, the incoming data presents a mixed picture. But the positives outweigh the negatives,” he said.

Das noted that Government expenditure has started picking up. Both revenue and capital expenditure of the centre and states have started picking up.

“Subsidy outgo remains an issue. In the second quarter, we find that payment towards subsidy of the general government has gone up. So, that may have a negative impact on the GDP number.

“But down the line, I think, economic activity remains quite robust….So, I would not rush to declare that the economy is slowing down…by and large, the underlying economic activity remains fairly strong,” the Governor said.