New Delhi: Governor Shaktikanta Das has said the Reserve Bank will strive to bring down headline inflation to its target of 4 per cent, but flagged El Nino as a challenge to its efforts. In an exclusive interview with PTI at his office here, Das expressed confidence that the economy will grow at 6.5 per cent in FY24, as projected by the RBI earlier.
The central bank’s cumulative 2.50 per cent rate hike since May last year, coupled with the government’s supply-side measures, have helped bring down inflation to 4.25 per cent in May from a peak of 7.8 per cent in April last year. Das said.
“We remain cautious on the inflation front. We expect inflation to be 5.1 per cent in FY2024 and will continue to strive to bring it down to 4 per cent,” he said.
On higher borrowing costs, Das said interest rates have a direct correlation with inflation and RBI may cut interest rates if consumer price inflation comes down to 4 per cent or so on a sustainable basis. The governor pointed out that the Russia-Ukraine war led to a jump in commodity prices, which led to a rise in inflation, but added that crude oil prices are no longer a concern from an inflation perspective as they have come down. 76-76 US dollars per barrel.
Das said food inflation has also come down, helped by measures such as the release of wheat and rice stocks by the Food Corporation of India. Targeted reduction in duties on certain products has also helped, he said.
Asked about challenges on the inflation front, Das pointed to 2-3 factors such as volatile international situation due to geopolitics and monsoon situation domestically.
“Though a normal monsoon is expected, there are concerns about El Nino. We have to see how severe it is. Other challenges are mainly weather events, which could impact food inflation,” Das said. He said that we have to deal with these uncertainties.
Meanwhile, on the growth front, Das said the RBI has taken all factors into account while arriving at its projection of 6.5 per cent expansion in real GDP and is confident that the economy will achieve it, though the IMF As other observers estimate to be much less.
He said bank credit growth of around 16 per cent is sustainable and RBI is closely monitoring developments on this front. There is also a strong demand for credit from corporates, including project loans, he said, underlining that the overall credit growth is broad-based.
Stating that the rupee has been less volatile in calendar year 2023 and the domestic currency has strengthened against the dollar, Das reiterated that the RBI will continue its efforts to reduce volatility. Das said he is confident that the rupee will not be affected even if the US Fed hikes rates, pointing out that the domestic currency is stable even after a 5 per cent hike in rates in the US.
The governor said the current account deficit (CAD) in FY24 would be “fully manageable” as positives like higher service exports and lower crude oil prices are working in our favour.