RBI Governor Shaktikanta Das' Post-Monetary Policy Press Conference

Good morning and namaskar to all of you. Once again, I have seven points which are primarily drawn from the statement which I have already made, and they are very brief. One, domestic economic growth is resilient. Number two, inflation is moderating but the pace of disinflation is uneven and slow. Number three, there is still a distance to cover to align CPI inflation to the 4% target. Four, the financial sector is stable with well-capitalized and unclogged balance sheets. Five, India has enhanced its resilience against spillovers from external shocks. Six, foreign exchange reserves have reached a historical high of US$675 billion. Seven, the Reserve Bank remains committed to ensure orderly evolution of financial markets in its regulatory domain. I read this point again: the Reserve Bank remains committed to ensure orderly evolution of financial markets in its regulatory domain. Thank you.

Before that, I just want to make one point. The second point, actually, I just want to rephrase it. What I had said, it should read as follows: that inflation is moderating but the pace of disinflation is uneven and slow. I said that it has moderated from its high levels, but the wording should be: inflation is moderating but the pace of disinflation is uneven and slow. And the third point was that there is still a distance to cover to align CPI inflation to the target. Thank you.

No, that's a separate issue. Now, I would guess that there would be a few other questions also on this topic because it is so fresh in everybody's mind. So we were expecting actually quite a few questions on this issue. So is there anyone else who wants to ask a question on this particular area or a related area, so that we can take it all together? No? I think same questions. Okay. Now, you see, there were some developments in the... you are referring to the United States economy. Now, actually, if you see, I would like to say two things. Number one is that the unemployment data which came from the United States just last week, that has created some... that has led to this kind of speculations. But if you look at overall economic growth in the US, I think it's doing quite well. The second quarter growth numbers in the United States were higher than the first quarter, and it was about 2.8%. And then the second point is that this is just so far as unemployment is concerned, it's a one-month data. Now, based on a one-month data, you cannot assume that... you cannot rush to a conclusion about possibility of slowdown or possibility of a recession in a large and the largest economy in the world. So you have to see, you have to wait and see the incoming data. In any case, I think some narrative coming out from several members of the Fed, they have also said the same thing, that we need to watch. So therefore, I think it would be premature to talk about a recession in the United States. But I am not holding a brief for the US and all that. I would like to say from the perspective, from the point of view of the Reserve Bank, is that we will be watchful of all incoming data from domestic as well as in this case from external sources, and we will deal with all emerging situations. Further, let me also add, and it is there in my statement as well as in the points which I read out just now, today India has improved its resilience vis-à-vis external shocks quite a bit. I think we are today, India is far more resilient than what it was earlier. So we will have to wait for the incoming data and deal with the situation. International agencies like the IMF, the OECD, the WTO, they have all projected world trade to rise this year, to grow this year at about 3% or so against very low growths last year. So this projection was just made very recently, and that would obviously support the overall external demand situation. So I'll stop here.

First of all, we look at the sources of shocks. There are various types of items in the food category. They come with, say, a seven-day recall, which is the most perishable, and a 30-day recall, which is a little longer. So usually the most perishables have a very short shock that lasts not more than two months. Also, we can calculate what is called persistence, which means how much time does it take for a certain price to return to its mean value after a shock. So we watch all these things when we judge whether it's persistent or transitory.

You see, with regard to LCR, liquidity coverage, which the banks are expected to maintain, it's a draft which we have put out in the public domain. We will get inputs from all stakeholders, including the banks and other experts. Based on that, we will finalize our decision. We will take a decision. So far, you know, it will not be correct to say that we have increased the liquidity requirements because it is still under discussion. We are waiting for the inputs which will come. Now, so far as deposit rates are concerned, it is for individual banks to decide on these matters, which are entirely a part of their commercial decision-making. Lending rates and deposit rates, as you know, are deregulated. It is for banks, and the situation will vary from bank to bank. So depending on the overall economic situation, financial conditions prevailing, depending on individual banks' own internal position with regard to how much deposit they have, what is the composition of their deposit, what is their loan growth, it is really for the banks to decide on the deposit rates, and the banks will have to take a call. All that we have done is to say that the banks should use their branch network, come out with innovative product offerings with regard to deposit, with regard to mobilizing deposits. So therefore, it's for the banks to decide. With regard to the neutral rate, I would request the Deputy Governor Michael Patra to take that question.

You see, the consumption expenditure survey is undertaken by the NSO. The current CPI basket and what is the weight of core, what is the weight of fuel, what is the weight of food, has been decided on the basis of 2011-12 data. It's, you know, years have passed by. There should have been one more review, but because of COVID, I would guess, because of COVID and the pandemic-related stress, it could not be undertaken. One year data collection has been done by the NSO, as far as I'm aware. I think the next year data collection is on, you know, the analysis is on. So based on that, the NSO will decide. This is something which is periodically done. What we are looking at is that what NSO does, and which is indeed the basis of the consumption basket, our conclusion or we draw from what the NSO gives us, the country draws from that, what is the total expenditure basket, in that how much is the food component, how much is the core component, how much is the fuel component. So therefore, they haven't come out with any definitive conclusion so far as the weights of all these components of CPI headline inflation is concerned. And with regard to the importance of food inflation, a question comes up in the mind of any average business or other people that what is the role of monetary policy in the context of food inflation. It is made out as if monetary policy doesn't have a role. So it is basically whatever I wanted to say, I have said it in my statement. I would not like to add, you know, I have nothing more to add to what I have said in my statement.

No, we are not linking. You know, I'm saying there's a narrative in the market which is linking... not some narrative is there in the market. So I think, would you like to take this question or would you like to deal with it? I'll supplement.

You see, F&O, it's not as if in F&O people are looking only at the margins. It's not as if the entire savings amount is going into F&O. So that is something we have to remember. And on F&O, whatever views we had, we have already discussed with the SEBI, the early warning group that we have among all the regulators. There is something called the early warning group. It has been discussed. We have put forth our viewpoints. SEBI has taken note of our viewpoint. SEBI has made its own analysis, and any further steps based on the discussion paper and the inputs they get, SEBI will take appropriate action. So, and with regard to the bank deposits, and I think DG has already explained, you see, what the thrust of all that I am saying is that the mismatch or the divergence between bank deposits and bank credit growth, the divergence will create, may create, let me put it this way, may create asset liability or liquidity issues, liquidity management issues. So I'm only flagging this issue that because of this divergence in growth of deposits vis-à-vis growth of credit, it can potentially result in a liquidity management issue which the banks have to deal with. I'm not by any chance suggesting that people should put more deposits in the banks, not go for equity market. It is left to the people to decide. It is left for the investor, it is left for the saver to decide where he wants to put the money. All that I am saying is that the banks need to focus on this, mindful of this, because potentially it can create some structural challenges with regard to liquidity management. And one way of dealing with this situation is that the banks have the potential, you know, the huge network of their branches which they need to capitalize and raise their deposit levels if they have to, you know, if they are proposing to also sustain and support their credit growth. So it is more in the context of a structural challenge that may come up with regard to liquidity management.

You see, on the aspect of supply side measures, that is constant engagement between the RBI and the relevant ministries of Government of India. And government has been taking a number of measures. In fact, one or two, I think last year in the annual report, we have given out the list of measures which have been taken by the government to deal with the supply side issues in inflation, including food inflation. There's a long list which is given out in our RBI's annual report. And the various ministries are tending to the situation as it is emerging. Surprises are there, sudden rainfall and floods, etc. Even that is being discussed between the RBI and the government, and government has been taking steps.

No, you are asking me to give a rating of government action, which I will not, because it's a continuing process of interaction between government. Government has taken a number of measures, and that's how it goes.

I think somebody else can pick up your question, because otherwise LCR, we have not yet introduced, not yet implemented. It's still in discussion, it's still in draft stage. So when the comments come, we will examine.

No, I think you have said that. Please, I think I was unfair to him that way by not allowing the second question. I would request, once again urge everyone, second questions you can clarify bilaterally after the press conference. But since you have said it in front of camera, I would request Deputy Governor M. Rajeshwar Rao to deal with that question briefly.

I think Deputy Governor Swaminathan can take that question.

You see, and I would just like to add a small supplement. You see, the NPCI action to block further transactions wherever this particular service provider had been engaged was to isolate the problem. And if it had not been done, it could have, I'm not saying it would have, it could have produced a system-wide impact which could have been far more costly. So therefore, that problem had to be isolated and dealt with. And as Deputy Governor is saying, that the CERT-In team of RBI has already gone into the details of it, and appropriate action has been taken.

No, I don't have any personal view. These are all institutional views. And as I said, the NSO survey is on, and based on that, if required, you know, depending on what the data throws up, depending on that, decision will be taken at the appropriate time between the government and the Reserve Bank. But it all depends on what data and what picture the survey throws up.

I think you can take that question.

No, we don't have any ready data available for this.

You see, banks have their transaction monitoring system. There are very odd, you know, idiosyncratic transactions. For example, a low-value bank account where the transactions have been of very low value, suddenly if the transaction frequency or the amounts being transacted goes up, in many such instances the transactions are held at late night hours. So the banks have systems now to monitor that, and that is something we have sensitized the banks. Most of the banks have systems in place to monitor such behavior in the banking system, and wherever required, action is being taken. And as he said, there's a constant engagement between the RBI, the law enforcement agencies, the concerned ministries of government, and of course the banks.

No, this is again, you know, this is for the banks to take their own decision. I mean, we trust the judgment and the risk management systems in the banks. As I said, that the risk management systems in banks have become much more robust today, so we don't want to do micromanagement for the banks. But yes, at the supervisors' level, there are constant discussions. Our supervisors do interact with the banks at regular intervals. At my level, I have meetings with the CEOs of both public and private sector banks. Such issues come up for discussion. In fact, in the last meeting which we had about a month or so ago, this was one of the listed subjects. We have discussed, shared our thoughts, and it's for the banks to really take the required measures. We watch all incoming data. I'm not saying with reference to the liquidity management, we wait, we watch all incoming data from the banking sector. Wherever required, the RBI, wherever required, I'm not saying we are going to take some action tomorrow, as and when required, the RBI may take action. And please note that I'm not saying that, you know, you should not conclude that RBI is going to issue a circular on the liquidity management. But all incoming data with regard to banking sector are monitored, and we sort of deal with such problems should they arise.

No, we are monitoring that. It was sort of confined to, you know, two, three places. Kerala also, it was one particular district. Himachal also, certain regions of Himachal. And obviously, the impact on prices of vegetables or supply disruptions, we are monitoring them. And some of these things, the impact would be temporary. You know, the impact would be temporary. And so it is constantly monitored what impact it will have on inflation on a wider scale, that has to be monitored, that we are monitoring. And that's it I would like to say. But I would like to also mention, which is there in my statement, is that the monsoon now, I think according to the latest number which we have, it's about 7% above the long period average. And the kharif sowing has picked up. So what it will achieve, and also there is a forecast of La Niña playing out in the second part of the second half of the monsoon season, and the reservoir levels are also very good now. So what this will do is that it will have good impact on the kharif output. Kharif net sown area has also exceeded. And so we expect this to have a positive impact on the kharif output. And because of the improvement in the moisture content in the soil, it will have a positive bearing on the rabi output also. So these are things which we keep on monitoring, and we'll deal with it.

I think that question was elaborately answered by the Deputy Governor Michael Patra. But so far as global investor sentiment is concerned, I think global investor sentiment vis-à-vis India continues to be very high. And I have given the data with regard to the FPI inflows, with regard to the FDI inflows, it is there in my statement. So I would... our assessment is that global investors' confidence is very positive so far as India is concerned, as reflected from the FPI, FDI flows, and also the fact that so far as GDP growth is concerned, I mean, the GDP growth of India is expected to be the highest among the major economies. And even the international agencies like IMF have also revised their growth projection for India upwards from 6.8% to 7%. So I think overall international confidence on India remains intact.