New Delhi: Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said an interest rate cut at this stage was “premature and very risky”.
Speaking at the India Credit Forum held in Mumbai via Bloomberg, Governor Das warned against premature interest rate cuts when inflation risks persist. The RBI still maintains a growth forecast of 7.2 per cent for FY25 and expects inflation to moderate in November.
“We are not behind the curve. The story of Indian development remains the same. India's growth will be 7.2 percent. “Growth is stable and resilient, inflation is moderate and presents some risk, so a rate cut at this stage would be premature and too risky,” Das said.
While inflation is expected to moderate, Governor Das said there are “significant risks” to the growth prospects.
During the October monetary policy announcement, the RBI maintained the current stance on interest rates and changed the stance from 'accommodative easing' to 'neutral'.
“There may be differences of opinion, but overall market expectations are very much in line with our policies,” he said, countering criticism that the RBI may be behind the curve in handling the economic outlook.
He further outlined India's overall economic resilience, highlighting the country's stable economic fundamentals and strong international investor confidence. According to Das, these factors have helped maintain the stability of the Indian rupee, which has depreciated only modestly in response to global market movements.
While private credit poses global risks, India's regulatory framework for non-banking financial institutions (NBFCs) ensures stability, he said.
Das' comments come amid a broader debate about the economic momentum of India, which recently surpassed China in population and maintains a faster rate of economic growth than its neighbor.
He asserted that India's growth story remains the same even as the country endures inflationary pressures and global economic challenges.
Responding to a question on private loans, the RBI governor said they pose some risk to all central banks, but there is no risk to India.
“As far as India is concerned, private credit in the Indian context has not been a problem as it is mainly provided by non-banking financial institutions controlled by the Reserve Bank,” he added. Reflecting on the RBI's contributions in recent years, Das highlighted several key initiatives that have strengthened India's financial sector. He noted the proactive stance of the RBI in regulating the banking sector, saying that the RBI keeps a close watch on the credit markets and takes action when necessary.
The governor underlined the RBI's role in increasing the stability of banks, reducing the gap between credit and deposit growth and supporting the rapid growth of non-banking financial companies (NBFCs), which now account for around 30 per cent. percent of the Indian credit market.
Pointing out the KYC issues, Das said, “I think there are some complaints about issues related to KYC, you know, knowing the issues related to your customers and knowing the ultimate beneficiary of the investment. Now, this is not our creation, but it is a FATF requirement.
Given the complexities of global financial markets, KYC regulations are necessary to ensure that funds coming into India come from legitimate sources.
“We often represent issues related to practical issues of knowing your customer. Those are the problems related to KYC. This is noted not only by us, but also by the stock market regulator, especially foreign portfolio investors. “It is linked to stock market regulator SEBI, which manages it,” he added.
