High rate regime may continue: RBI Guv

New Delhi: Interest rate is likely to remain high for the moment, Reserve Bank Governor Shaktikanta Das said, stressing the central bank will remain extra vigilant and keep Arjun’s eye to ensure a sustained decline in inflation. The lending rates are ruling high after the RBI cumulatively hiked the key policy rate (repo) by 250 basis points since May 2022 in a bid to tame inflation which touched a high of 7.44 per cent this July. The consumer price index (CPI) based retail inflation is now declining and fell to five per cent in September. The government has mandated the central bank to ensure inflation remains at four per cent with a margin of two per cent on the either side. “Interest rate will remain high. How long they will remain high, I think only time and the way the world is evolving will tell,” the governor said in response to a query at Kautilya Economic Conclave 2023.

The Governor further said Rs2,000 denomination notes are coming back and only Rs10,000 crore worth of such notes are still with people. He exuded confidence that these notes will also be returned or deposited back.

On the sidelines of the Conclave, Das said the RBI remains very focused on the inflation dynamics. “We are extra vigilant and we stand ready to take whatever action that needs to be taken. We need to see sustained decline in inflation. Our objective is to reach four per cent,” he said. On elevated crude oil prices in the international market, he said, “what matters is the pump prices in India”. The pump prices of petrol and diesel are important as far as inflation in India is concerned, Das added. Responding to queries on impact of crisis in Middle East, the Governor said that in the last fortnight, US bond yields have risen, which has wider implications for other economies. Crude oil prices have also gone up. “Some of these uncertainties were there, but they have become more pronounced in some sense. What is different in the context of India, we are impacted by whatever is happening all over, no doubt on that.

“Our macroeconomic fundamentals continue to be sound. Eventually, in these uncertain times, what matters is how strong is your macroeconomic fundamentals, how strong is your financial sector. I think on both these parameters India is well placed,” Das said. He also said the dollar index has become strong and bond yields in the US have reached all-time highs. “But if you look at the volatility of the Indian rupee, from January 1 till now, the rupee depreciation is 0.6 per cent whereas on the other side, the appreciation of the US dollar for the same period has been 3 per cent. So rupee is stable.