Indian Central Bank Chief Vows Ample Liquidity to Aid Economy

(Bloomberg) -- India’s central bank will ensure ample liquidity to support the recovery of its economy, Governor Shaktikanta Das said, signaling above-target inflation is not as much of a threat to Asia’s third-largest economy at the moment.

The Reserve Bank of India continues to be supportive of growth, Das said, addressing an industry lobby in Mumbai on Monday. Premature tightening of monetary policy settings would have proved counter-productive to demand, he said.

The statement reiterates Das’s view from last month that nature of inflation in India is different from the U.S., and hence there was no hurry to follow peers in raising borrowing costs. That said, the war in Ukraine poses a threat to RBI’s benign inflation outlook, with Das acknowledging that the central bank’s 4.5% price-growth forecast for next fiscal year beginning April needs to be reworked.

Read: India Rate-Setters Say Inflation Outlook Overtaken by War

The pandemic and geopolitical risks have pushed the RBI to be innovative, Das said, adding that hit to growth from the conflict would be very marginal.

Although headline inflation breached the central bank’s 6% upper tolerance limit in the first two months of this year, the RBI has maintained that the price-growth was supply driven and transitory. It also last month saw growth slowing to 7.8% next fiscal year from the 8.9% pace estimated by the government for this year.

Das said the central bank was conscious of its role of maintaining price stability, but it was the government’s job to deal with supply side issues and not that of monetary policy.

The RBI’s six-member MPC is due to meet early next month to review policy, which has stayed accommodative for nearly three years and interest rates kept unchanged at a record low for about two years.

Das said he will go into the next policy with an open mind, but clarified this wasn’t a signal or indication about the next policy decision.

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