The Reserve Bank of India (RBI) will raise policy rates further in the coming months, Governor Shaktikant Das said on Monday, at the same time will not allow the central bank to devalue the rupee.
In an interview with CNBC TV18, Das said “high expectations are not a matter of intelligence” and added that a new inflation forecast would be released at the June meeting of the Monetary Policy Committee (MPC). “There will be some growth, it may not be accurate to say it will go up to 5.15%,” the governor said, adding that the idea was soon to move to a positive real rate, although it was difficult to predict how quickly it would go.
The RBI raised the repo rate by 40 basis points (bps) to 4.4% in early May. Earlier in April, it changed its position and introduced SDF (Standing Deposit Facility) at 3.75%, 40 bps higher than the reverse repo rate.
Das said the central bank and the government have entered another phase of integrated measures to control inflation, adding that it means the center will be committed to a revenue deficit target of 6.4%.
Asked about rising yields and the Centre’s large-scale credit program, the governor said all materials would be used to ensure that the yield curve was developed in an orderly manner.
“We’ve raised the HTML (hold-to-maturity) portfolio limit to 23%, so it’s not like we’re keeping our eyes closed,” he said.
Das reiterated that liquidity would be normalized in a multi-year cycle, which could be two or three years, noting that “liquidity adequacy” would depend on the dynamics of rising inflation and could be a “moving picture”. “We will bring it down in a systematic way,” the governor said.
The governor said the central bank was well-established to finance any deficit in the balance of payments arising out of the growing current account deficit (CAD). He also highlighted the RBI’s $ 600-billion reserves and fixed FDI, as well as its export performance. Regarding the rupee, he said that the RBI has no stated level where it wants to peg the currency and its stated purpose is to prevent any excessive volatility. Das reiterated his views on cryptocurrencies, saying that legalizing them would severely damage financial and financial stability.