MUMBAI: While the Reserve Bank of India’s (RBI) monetary policy is primarily focused on inflation and growth, the underlying theme has always been financial stability, said RBI governor Shaktikanta Das on Monday.
Das spoke at the Lal Bahadur Shastri National Academy of Administration (LBSNAA), Mussoorie, on the evolving role of central banks. A copy of his speech is available on the central bank’s website.
“In a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives. The relative emphasis on inflation and growth depends on prevailing macroeconomic scenario, inflation and growth outlook, and signals emerging from incoming data," he said.
Quoting the Reserve Bank of India Act, 1934, Das said the RBI works to regulate the issue of bank notes and maintaining reserves with a view to securing monetary stability. This role has been restated as per the amendment in the RBI Act in May 2016, according to which “the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth."
According to Das, post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability and therefore financial stability has emerged as another key consideration for monetary policy, though jury is still out as to whether it should be added as an explicit objective of monetary policy.
The governor said despite more than a decade of global financial crisis and six years after taper-tantrum, the global economy was still not on a stable growth path.
“Following an upward swing in 2017, there has been growing evidence that global growth and trade is weakening. Unsettled trade tensions and developments around Brexit are imparting further downside risks to the outlook," he said, adding that global trade is projected to expand at a moderate pace in next two years, in line with subdued investment outlook for many major economies.
Das said while the global economy was yet to return to the pre-crisis growth path, India has continued to exhibit robust growth driven by consumption and investment demand in the last three years. However, he said, India has seen a loss of speed in the second half of 2018-19 as some drivers of growth, notably investment and exports, slowed down.s
“On the supply side, activity in agriculture and manufacturing moderated sharply. It is expected that the end of political uncertainty associated with an election season and continuation of economic reforms would lead to a reversal of the current weaknesses in some of the indicators in our economy," said Das.
The central bank, he said, has accorded high policy attention to reform both banking and non-banking sectors and has been taking steps to strengthen the regulatory and supervisory frameworks to boost the resilience of the banking system.
