- By Vaamanaa Sethi
- Tue, 05 Sep 2023 05:34 PM (IST)
- Source:JND
The Reserve Bank of India (RBI) governor Shaktikanta Das, on September 5, said that monetary policy has to be forward looking and conducting policy approaches to looking at rear-view mirrors only which can lead to accidents.
While speaking at Delhi School of Economics Diamond Jubilee Distinguished Lecture on Tuesday, Das compared the conduct of monetary policy to driving a car on the road with potential bumps and ditches.
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"Driver needs to see ahead and regulate the speed of the car. If a driver reacts suddenly to a speed bump, he can cause an accident," Das said.
RBI has been taking preventive measures to curb the rising inflation in the country. It has raised the repo rate around 250 basis points since May 2022 to combat inflation. Repo rate refers to the rate at which the central bank lends short-term funds to banks.
Inflation in India is likely to remain elevated in the near terms but government policies will prevent it from rising further, S&P Global Ratings Economist (Asia Pacific) Vishrut Rana said on Tuesday.
“It is necessary to watch price stability and act appropriately. We are now firmly focused on the 4% target,” Das said. He further mentioned that the RBI intended to handle liquidity management in the post-COVID era in a manner that would safeguard price stability without causing disruptions.
"Most of our liquidity injection measures were announced for one year or three year periods. This enabled them (market participants) to plan their activities in a manner to return the money to the central bank in one year or three years," Das said.
Based on prior experiences, the RBI successfully employed a distinctive and innovative strategy. This approach empowered the RBI to reverse the special measures implemented during the COVID period, the Governor highlighted.
"Unless you roll them back in time, it will undermine financial stability. That’s one of the reasons why we see financial stability and banking sector stability in our economy," Das added.
The Governor also emphasized that the central bank is closely monitoring call money market rates to ensure the effective transmission of policy actions.
