(Bloomberg) -- India’s central bank governor said an easing in the monetary policy stance doesn’t indicate an interest rate cut at the very next meeting, dashing hopes of a move in December.
There are “significant upside risk to inflation,” Reserve Bank of India Governor Shaktikanta Das said at a fireside chat hosted by Business Standard newspaper in Mumbai on Wednesday.
“We have to be very cautious in our future course of action,” he said. “A change in stance doesn’t mean the next step is a rate cut in the very next meeting.”
The RBI has kept interest rates unchanged for almost two years, although it changed its policy stance to “neutral” last month, raising expectations it’s getting close to cutting rates. However, inflation accelerated in September to well above the RBI’s 4% target, and Das said Wednesday the October figures are expected to remain high, giving him reason to stay cautious.
The governor’s comments were largely in line with his hawkish tone from last month, when he said a rate cut at this stage would be “very risky,” and he’ll consider easing only after inflation sees a durable descent to 4%. The central bank’s next scheduled policy decision is on Dec. 6.
Das defended the RBI’s economic growth projection of 7.2% for the current fiscal year through March 2025 even though recent signs showed a weakening in urban spending. The governor said he wouldn’t rush to declare a slowdown yet as the economy is showing “mixed signals,” pointing to higher car sales and rising output in steel and cement.
Economists have been lowering their growth projections for the year as urban sentiment slides, with investment banks like Goldman Sachs Group Inc. predicting 6.5%.
Responding to a question about the US election outcome, Das said the India’s economy and the financial sector was resilient and able to deal with any spillovers related to global developments.
Asian currencies weakened as the US election results pointed to a victory for Donald Trump. India’s rupee hit a record low earlier on Wednesday, and was down 0.2% against the dollar as of 12:50 p.m. in Mumbai.
Das signaled the RBI would continue to intervene in the foreign exchange market when necessary.
“When it comes to our domestic markets, we are not bystanders we are very much in the market,” the governor said. “The macro economy is very resilient to deal with any kind of spillover in comparison to many other countries.”
Other highlights from Das:
- India-US relations “have become much stronger and that will continue irrespective of who wins”
- The central bank will withdraw restrictions on shadow lenders if they comply with RBI norms, Das said, adding that the central banks action on NBFCs was “selective and calibrated”
- “We have not hard-coded” any credit-deposit ratio for banks, he said
--With assistance from Saikat Das and Subhadip Sircar.
(Updates with additional comments from Das starting in third paragraph.)
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