Yes, you can start. Yes sir, we are clear. It's okay. Thank you, thank you very much. He's taking it. Okay, thank you.
It's all about managing expectations. So, okay. Thank you, sir. Uh, hello and good afternoon. Welcome to this post-monetary policy press conference. Friends, we have with us Governor Reserve Bank of India, Shri Shaktikanta Das; Deputy Governor Dr. MD Patra; Shri M. Rajeshwar Rao; Shri T. Rabi Sankar; and Shri Swaminathan J. We also have with us Dr. OP M, Executive Director, and Executive Director Dr. Rajiv Ranjan, and other colleagues from the Reserve Bank. Sir, to begin with, I would request you to make your opening remarks. After that, we will have the Q&A.
Please. I would like in the beginning to make five observations. First, number one: the MPC remains committed to restoring the balance between inflation and growth, which has gotten unsettled recently. Two: The Reserve Bank will use its various policy instruments to create the conditions for restoring the inflation-growth balance. Three: The credibility of the flexible inflation targeting framework needs to be preserved. Four: Inflation has to be brought down in the interest of sustainable growth. Five: Prudence, practicality, and timing – I repeat, prudence, practicality, and timing – will continue to be the guiding principles for the Reserve Bank's future actions. It is all about dissection of the inflation-growth conditions and acting accordingly. Timing of actions is the key. Thank you.
Thank you, sir. Before we begin, I'll request the media friends present here to wait for their turn. You may see my colleagues on the aisle; they have the mics with them, so they'll give you the mics. Please speak into the mic, because otherwise you will not be audible to outsiders. And in the interest of time, as I always say, please restrict to one question per person, and if time permits, we can consider the other one. Sir, there are 24 participants from media today, and with your kind permission, I'll start calling out their names. So, I'll start with Mr. Yogesh from Dainik.
Good afternoon, sir. Thank you for the opportunity. Sir, despite the reduction in the GDP forecast, the rates are basically maintained, the status is maintained, but the CRR was reduced by 50 basis points. What was the thinking behind that? Thank you.
I think I have explained it elaborately in the statement which I presented earlier today morning. As regards growth, the second half of this year looks better than the first half. The first quarter of this year, there were issues that coincided with the election season. Countrywide election probably affected government expenditure in particular. For the second quarter, the reasons for the slowdown we have explained. Monsoon continuing rainfall also affected activities, particularly in mining, electricity demand, and manufacturing. So, I have explained why we expect the second half to be better than the first half this year. On inflation, I have also given parts, we have also given a roadmap. We need more credible evidence that things are happening the way we are expecting, that the direction of developments, the evolving conditions, and the outlook is playing out in line with our expectations. Then, as I have just now mentioned, it's a question of timing. You have to appropriately time your actions. When there is time for a particular action, be it rate cut, be it liquidity action, be it whatever, the actions have to be well-timed, keeping the outlook in mind, and action has to be taken when it is really going to be most effective and impactful. Thank you.
Thank you, sir. Next, we will have Mr. Manojit Saha from Business Standard.
Thank you, sir. Let me ask something which is on everybody's mind. Have you heard anything from the government so far about whether you are continuing this term, at least informally before the policy meeting started?
I will have one more question today.
Yes, is that your only question?
No, I will have one more.
No, let's stick to monetary policy, please. Ask your question on monetary policy; otherwise, you will miss your chance.
So, you choose. Which my name is?
You know, inflation was projected at 7% even in October, it came out at 5.4%. So, what exactly went wrong in the projection?
I would request Deputy Governor Michael Patra to take that question.
There is a lot of commentary on that already in the press. If you look at the demand side, the main problem is investment. On the supply side, the main problem is manufacturing, and the two are intertwined. In manufacturing, the biggest issue is the slump in sales growth, and that is reflecting inflation hitting the urban consumer. So, when sales growth is down, companies do not want to invest in new assets because they see demand as moderate and it can be met from existing capacity. Since they don't want to engage in new capacity creation, investment is down. So, the underlying slowdown in growth is because of inflation.
Thank you, sir. I will now request Mr. Anurag Mishra from ET.
Good afternoon, Governor. I want to understand the inflation scenario which you have explained. You are also maintaining that in Q4, the situation might be slightly better, while in Q2 and Q3, the upside risks remain. Last time you had mentioned about the horse bringing it back to stable. What is the scenario now? Is it that a controlled trot may continue, or do you see the need for tighter reins to control the horse?
The horse has made a very valiant effort to bolt. Our effort is to keep it in tight leash.
Thank you, sir. May I now ask Mr. Vishnu from NDTV Profit?
Good afternoon, Governor. The first question is, you mentioned that if growth continues to linger lower, then you may need policy support. You admitted that Q2 was looking weaker even though the rest of the financial year may look better. Your cut on the growth projections is sharper than your hike on inflation projections. I still want to understand why the status quo, because it's clear that you have a growth bias.
Whether I have a growth bias or inflation bias, my statement I have exactly explained our approach: why monetary policy is important, what exactly is the mandate given to the Reserve Bank. In the Reserve Bank of India Act, the provision is very clear, and our effort is always to follow the legal provision, the mandate given to us with regard to both inflation and growth. Our effort is to follow it in letter and spirit. In the life of a central bank, there is no room for knee-jerk reaction. We need more credible evidence, we need more evidence with regard to how the outlook is likely to be, and based on that assessment, the effort is always to take action in time. Whatever action – I'm not talking about rate cuts again – but whatever action we take, it has to be well-timed and it depends on the outlook. There is no room for knee-jerk reaction because if you take a certain knee-jerk reaction, you may have to reverse it. You should not regret it, but let me tell you very clearly that our effort has always been to remain in line with the curve, never fall behind the curve, and I think we are maintaining that trend.
Is the inflation targeting framework for food inflation or headline inflation? The Reserve Bank's target is for food inflation or headline inflation? The Reserve Bank of India's target...
Thank you, sir. Next will be Ms. Latha from CNBC.
Thank you. Sir, a couple of times you have said that the growth-inflation balance has gotten skewed and you have to restore the balance. Does it mean you were skewed in favor of growth and you're going back to inflation, or was the balance skewed in favor of inflation and now it will become pro-growth? How do we understand this skew question? And just a word on CRR. Is that only going to take care of the liquidity that has already gone away from the system? Q4 we are still staring at cash withdrawals, possible dollar inflows, RBI dollar sales. So, do you still have OMOs or any such thing on the table?
Whatever action we have on the table, I will not be able to spell out. It will depend on how the situation evolves. We expect in the next few months tight liquidity for reasons which I have explained. One is that we expect tax-related outflows from the system, both direct tax in the middle of December and thereafter the GST. Together with that, there is a possibility of an increase in currency in circulation because the busy credit season and agricultural activity has now picked up, and that requires cash. That will overlap into and merge into the harvest season as well, which requires cash. So, currency in circulation is also likely to go up. And there have been significant capital outflows in the months of October and November, which is the outflow of forex because of FPIs exiting. With regard to your point about dollar inflows, that is something which is difficult to quantify at the moment. Our assessment is that liquidity conditions will remain tight. Let us also factor in and bear in mind that the CRR increase was done sometime – if I remember correctly – in April 2020. In that policy we did it. It was a temporary measure; it has served its purpose. It was time to normalize it. With regard to the growth-inflation balance, I didn't say 'skewed'; I just said 'unsettled', and in the statement I have used a different word. Basically, what we mean is that last time we had said that the growth-inflation balance is 'well poised'. Well poised means the growth looked good for that quarter as well as for the whole year. The inflation outlook also we were aware that September and October because of weather factors, food inflation went up very steeply. September numbers were broadly a little higher than what we had estimated. October also we had expected it to be high, but the actual number came a little higher than what we had estimated. So, inflation was more than what we had expected, a little more, and growth also has moderated. The numbers we have given. So, the well-poised character of the dynamics between growth and inflation has gotten somewhat unsettled. Our effort is now to restore that balance, which basically means we want inflation to be brought down closer to the target, we want growth also to pick up. I think our estimates and assessment also show that growth is picking up. So, we have to be very watchful, we have to maintain that balance between growth and inflation. That's it. Thank you.
Thank you, sir. Next we will have Mr. Mayuresh Shetty from the Times of India.
Thank you, sir. My original question was on the GDP coming as a surprise, but Manojit already asked that. My other question is on coordination. During your term, there have been a couple of crises and RBI has coordinated with the government at that time, and that has worked very well. Now that uncertainty is constant, do you think there is scope for continuing this coordination, given that the inflation mandate is enshrined and there's an expectation from the government that there should be a focus on growth? Also, you do not give any forward guidance on your action. Do you think there is more scope for coordination?
Coordination has been there, coordination is there, and coordination will continue to be there. It is a constant process, and it continues. Whenever we have any thoughts or any concerns, we always share it with the government. This engagement and coordination continues. In one of my recent speeches at an international seminar which we organized in Mumbai with the participation of central bank governors from the South, I highlighted the importance of fiscal-monetary coordination. That is very important. It has proved its mettle. It has proved its strength during the stressful times of COVID and thereafter when the Ukraine war started and inflation suddenly spiked. Coordination continues. Thank you.
Thank you, sir. Next we will have Ms. Swati from Reuters.
Thank you, sir. So, we've seen growth numbers come down sharply. The 5.4% was a shocker. You've also revised down your growth estimates for the next two quarters, whereas inflation is high. Is it fair to say that India is now in a stagflationary phase? Also, looking at these growth numbers, is the trend growth for India coming down from the 7.5-8% levels closer to 6.5%? Is the trend growth for India much lower than what we have been talking about?
I will pass on this question to Deputy Governor Michael Patra. But I would also suggest that there have been so many other announcements, some very important announcements in Part B of my additional measures. I think maybe some questions on that would be useful for the wider audience which is watching this press conference. Go ahead, please.
I explained why there is a slowdown in GDP growth in the second quarter due to a special set of factors. Now, it is not appropriate to make a judgment on the trend rate based on one data point. What was expressed as 8% was not a trend; it was just the average from 2021 to 2024. And all over the world, for every country, the projections that are being made for 2025 and 2026 are implicitly correcting cyclically for the rebound from the pandemic for all countries in the world. So even when we made our initial projections, they were not at 8%. They were 7.2%. Also, in the Monetary Policy Report, we gave a projection for 2025 which was the same cyclical correction. After this correction is over, it will revert back to a trend, and we are yet to see the data points of that trend. What the Governor has been saying is that the average between 2021 and 2024 was 8%. Now, if you see the second half of the year's projections, there is a reversion back towards an upper rate of growth, 6.9%, 7.3%, and that continues into 2026. So we are hopeful that we will reach that level again.
Thank you, sir. Next we will have Ms. Hamsini Karthik from Moneycontrol.
Hi. What exactly was the rationale for reducing CRR? The question here is in the context that in absolute terms we don't have a liquidity deficit as such. If I were to look at it from a banking perspective, I would think that a CRR cut would allow banks to ensure that they don't have to compromise much on margin versus a repo rate cut at this point in time, given that profitability of banks has also sort of been under the weather for the last 3-4 quarters. Was that also a thought process that you had in mind when you initiated the CRR cut? And as such, the bank lending is also anemic. Do you believe that this will free up some more money for them to lend and increase lending?
The CRR cut I have just explained a little while ago. We have normalized it, and it was time to normalize it. It was a temporary measure, so we have normalized it. What the banks do with the CRR money is entirely their call. Whether they use it for giving credit or whatever purpose they want to use it is their call. With regard to liquidity, it is surplus today. It is surplus today. Perhaps on Monday next week, for 2-3 days it is likely to be surplus. But we clearly see that we are going into a phase where liquidity is going to be very tight in the later part of this month, December, and continuing into January and perhaps into February. So we thought it was time to sort of normalize the CRR levels. The other questions you mentioned about banks and other things, we don't make monetary policy or liquidity decisions keeping in mind the balance sheet requirements of banks. Our policies are governed by the growth-inflation dynamics. Our policies are governed from the point of view of maintaining overall stability of the economy. Whatever issues are there in the banks, etc., that is dealt with through the supervisory arm of the Reserve Bank. Thank you.
Thank you, sir. Next I will ask Mr. Ashish Aashi.
Thank you, sir. What prompted the FCNR-B measure? Last time we saw upwards of $30 billion coming in after some relaxations. This time, is there some bit of idea of how much incremental money would flow in? What are your expectations?
I think these measures are intended to enhance capital flows, and that has been clearly articulated in the circular. There is scope for foreign non-resident Indians or eligible Indians who are eligible to invest in the FCNR-B to increase their deposit base in India. That is purely what has been contemplated at this point in time, and it's a temporary measure which is there till 31st March. Thank you.
So, business... C-D-R-A... circular... what is the percentage of holding? What type of business? Future actions will be taken or regulatory actions will be taken on that basis.
So, we are waiting for feedback on the forms of business circular, and that will guide us in the way we look at investments into subsidiaries or associate companies of banks.
Already existing instructions. There are clear instructions. Already instructions.
Podcast is a new instrument. It has become very popular now, especially among youngsters. We want to remain in times with the requirement of the times. In this matter also, we should be ahead of the curve. It is basically a communication tool to communicate with a wider cross-section of the people. Sometimes it may be necessary not to give a detailed interview; sometimes it may be necessary not to do a press conference. You want to talk on a particular issue. Some new measure has been announced that needs to be explained to the people. Podcast will help in those kinds of things.
Thank you, sir. Next we will have Mr. Anoop from Bloomberg?
Sir, you said that the growth slowdown is probably over, and next half's growth will be better. But at the same time, you are saying that inflation pressure will be there, probably more than what we have witnessed. Are you indicating that a February rate cut is also very risky?
I have not indicated anything about the future cycle of interest rates.
Thank you, sir. Next I'll request Mr. Sachin Kumar from Financial Express.
So, the growth in unsecured loans has come down significantly in the past few months. But now there is one pocket of gold loan where the growth is very strong. Do you think it is a cause of concern, and that it may also warrant the same kind of measures to curb that growth?
I would request Deputy Governor Swaminathan to take that question.
The growth in unsecured loans at that point in time when we took some additional macro-prudential measures last year was essentially to curb the exuberance that we saw in that particular segment, so that any possible stress or risk buildup is avoided. That was the intention with which we took that step. Otherwise, in terms of what should be the product mix as to how banks should drive their business is purely a business call. Gold being a collateralized loan, banks and NBFCs have shown preference to grow that. What is more important for us is to ensure that there is fairness in their conduct towards the customers and that the appropriate norms relating to LTV, income-to-repayment obligations, etc., are being adhered to in a fair and transparent manner. So our instructions are more aimed towards ensuring orderly conduct of this business. Whether growth or product mix is something which is essentially left to the bank's wisdom to pursue.
What qualifies as exuberance according to you?
There are no golden numbers to determine which is less or which is more. Also, you have to see the percentages in reference to the base. When we talk about almost 175 lakh crore of bank credit, what is the proportion that the gold loan of 1 lakh crore plus constitutes? So, percentages at times can look different. What is more important is whether the portfolio is being built in a responsible manner, in a prudent manner. That is what we would keep watching. In any case, we will remain watchful of the incoming data, and if prudence demands that we should initiate some action, we will take it at the appropriate time. At this point in time, the guidance in terms of conduct would suffice, is our view.
Thank you, sir. Next, I request Mr. P from Hindu Business Line.
Good afternoon, Governor. Thanks, sir. Governor sir, first question is with regard to gold loans. My question is on MFIs. A lot of MFI companies are seeing higher delinquencies, creating higher provisions. Is the RBI concerned about this? Somebody mentioned that they have only 6 months of experience but still get loans. In the MFI sector, are we seeing any inbuilt stress building? What are your views on that? Separately, what gives you the confidence that the current fiscal 6.8% GDP growth can be achieved, the revised projection that you have done? Because in November we saw a 6-7% fall in UPI transactions. I know it's not the only indicator, but month-on-month it has fallen 7%, and it is a month of festivals.
On the growth number, I think I have explained it elaborately in the statement and now also have explained. What gives us the confidence or no confidence? I think it's for you to assess whether our numbers for the third quarter are realistic. We have made our assessment and we look at multiple factors. It's not just UPI; it's just one of the factors. On the other part of your question on MFIs, I would request Deputy Governor Swaminathan to reply.
These are some of the segments which, as we spoke last during the course of MPC as well, had certain segments where we saw increased slippages in the Q2 numbers that were emerging. As we mentioned earlier, it was not very surprising to us because these were the segments which saw out-lay growth a year before, and we had taken some proactive measures on that. If you would recall, in the August monetary policy statement, the Governor said that in these segments where enhanced slippage is being witnessed, we have requested the banks and NBFCs to strengthen their underwriting standards and step up on their collection efforts to ensure that the stress does not translate into NPAs. On the same theme, we continue to engage with the entities wherever we see any out-lay behavior. At the system level, it is still not a big concern. About 20-30 bps uptick in stress is something which we are confident that the entities will be able to handle. In certain entities where these particular numbers are a little out-lay, we deal with them on a bilateral basis, examining the steps that they are taking to ensure that the stress is not widespread. And thirdly, through the SRO, there are enough levers available to us to ensure that the self-regulatory organization in this particular space in the MFI space are taking adequate steps to sensitize their members to adhere to the prudential guidelines of the Reserve Bank and ensure that the household income assessment and the repayment obligation towards the net monthly income, etc., are strictly adhered to. And as the Governor said earlier, to avoid the push effect, just respond to the demand rather than give loans to achieve someone's target. These are three or four key messages that we have managed to deliver in the last 2-3 months. I think that should be good enough to ensure that the balance is restored in this particular segment.
On the UPI numbers, I think we shouldn't read too much. There was an over-increase last month because of the way the festivals fell this year, so that got corrected this month. I expect that the trend will continue going forward. Thank you.
Thank you, sir. Next I'll request Mr. Lendu Mishra from The Hindu.
Good afternoon, Governor. US President-elect Donald Trump has reportedly threatened to have tariff barriers and has mentioned Nations like India. Will it impact our exports, or is it a matter of concern?
No, it is... first thing is, let's not prematurely judge. So far as the BRICS you are referring to, in the context of the BRICS currency and all, sorry, yes, the BRICS currency was an idea which was raised by one of the members of the BRICS countries and it was discussed. No decision has been taken in the matter. The geographical spread of the countries also is a factor which has to be kept in mind. Unlike the Eurozone, which has a single currency and geographical contiguity, BRICS countries are spread all over. That also has to be kept in mind. With regard to the dollar de-dollarization, etc., there is absolutely, so far as India is concerned, there is no step which we have taken which specifically wants to de-dollarize. All that we have done is that we have permitted opening of Vostro accounts and we have entered into an agreement with a couple of countries to do local currency denominated trade. That is basically to de-risk our Indian trade. Dependence on one currency can be problematic at times because of appreciation or depreciation. As a part of de-risking our trade, that step has been taken. Nothing else. De-dollarization is not our objective. It's not on the table at all. I think it's more of a narrative which is being spread in some sections of the media. Our effort is basically to de-risk our trade. Nobody is talking about or thinking about de-dollarization. Thank you.
Thank you, sir. I'll request Ms. Sita Menon from The Economic Times.
Thank you, sir. Could you share your thinking behind the introduction of the SORR that you have spoken about in the policy? And, sir, could you give some idea on the timelines for the draft guidelines? Because almost four of them are already being talked about: project finance, LCR, and ECL climate finance. Could you give some idea when they would be?
So, as of now we have two benchmarks which are set out by the FICC. One is the MIOR, which concerns uncollateralized transactions, and we have the MIFOR, which is based on the market report. But the TREPS, which is 60% of the market, is not in that index. So this index that we will have now will capture all secured transactions. That is the limit. On the other part, I'll request DG Rajeshwar Rao.
Guidelines are fairly major game changers as far as the banking system is concerned. So we have got significant feedback on all these guidelines. These need to be carefully evaluated, close to finalizing some of the approaches. I will not give a definite timeline. We will do... we have followed a very consultative approach. These will all bring about significant changes in the banking system, so we are proceeding on it. These measures are necessary, but we have to proceed in a very careful and calibrated manner, taking into account the suggestions and other issues which have been raised by the banks and several other stakeholders. So we want to move very carefully, very cautiously, so that when implemented, the implementation is as non-disruptive as possible. Thank you.
Thank you, sir. Sir, with your permission, two more questions. So I'll request Mr. Ben Jo from New Indian Express.
Hi, sir. Hope to see you announcing the next policy, sir. Congratulations for the six years of service. We will miss you at the next policy. My question is what Lendu asked about, further building on that. The rupee has been under pressure, and if the Trump tariff war happens, say 10% on Indian exports, what could be the impact on the rupee going forward if the tariff happens?
I'll take that question. The tariff, hypothetically if it happens, will not be an isolated event. There will be other events around it. For instance, they say that perhaps China may react by devaluing the currency or there might be retaliatory tariffs. So at this point, it is very difficult to say what will be a unilateral move and unilateral effect. Let us wait for the general equilibrium effects. Thank you.
Thank you, sir. And lastly, I'll request Mr. Siddharth Sadasiv.
Thank you, sir. Good afternoon, Governor. A couple of months ago, there was a paper co-authored by you, Dr. Patra, saying that the rate hikes since May 2022 have had a negative contribution to growth by around 160 basis points. So, has too much growth been sacrificed to reduce inflation? And are those rate hikes and the retention of the repo rate at 6.5% expected to continue impacting growth going forward? Second, on FCNR-B, is the FCNR-B limit increase to reduce the pressure on RBI's forex interventions, because the monetary policy and forex management policy has been sort of at odds? The interventions have drained out a lot of rupee liquidity. Is that also a consideration?
I think since the paper was authored by Dr. Michael Patra, he should reply. I think he can reply.
