Home Business Higher interest rates will help curb inflation: Ashima Goyal, RBI member

Higher interest rates will help curb inflation: Ashima Goyal, RBI member

RBI increased the short-term lending rate by 50 bps for the third time in a row. (file)

New Delhi:

RBI’s Monetary Policy Committee (MPC) member Ashima Goyal on Wednesday said that the Reserve Bank’s efforts to contain inflation due to frequent interest rate hikes will help in containing inflation, which will be below 6 per cent next year. likely to go.

Ashima Goyal further said that while policy rate hikes have largely reversed cuts in times of pandemic, the actual rate is low enough not to hurt the growth recovery.

He told PTI in a telephonic interview, “With a lag of two-three quarters, higher real rates will dampen demand in the economy. With the global slowdown, international commodity prices are softening and supply chain constraints eased. Huh.”

To control rising inflation, RBI on September 30, increased the short-term lending rate by 50 bps for the third time in a row to take the repo rate to 5.9 per cent. It has increased the key interest rate by 190 basis points since May.

Ashima Goyal said, “The Indian government is also taking action to reduce supply side inflation. Current estimates suggest that inflation is falling below 6 per cent next year.” The central bank is mandated to keep inflation at 4 per cent with a margin of 2 per cent. Both sides.

According to Ashima Goyal, marginally positive real interest rates can act to contain inflation along with supportive supply-side action while imposing minimal growth sacrifice. He said that today’s forward-looking real interest rate is positive and such a rapid response in an inflation targeting regime helps stabilize inflation expectations beyond the tolerance band.

India’s consumer price index (CPI)-based inflation rose to a five-month high of 7.41 per cent in September, well above the upper tolerance level of the RBI’s inflation target framework for the ninth consecutive month.

Responding to a question on the Indian rupee touching a historic low, Ashima Goyal said a higher depreciation rupee makes imports more expensive and hurts those who have borrowed abroad but returns for some exporters. can increase.

Noting that lower imports and higher exports could help narrow the current account deficit, he said the dollar is strengthening against all currencies as rising Fed rates attract money back to the US.

“But INR depreciation is lower than in most other advanced and emerging markets and equity inflows have recently returned,” she said, adding that since INR is market-determined, this means that the market is factoring in India’s better prospects and lower inflation. are.

Emphasizing that the fall in Indian equity prices is less than that of other countries, which reflects the confidence of the market in India, he said the forex reserves have depreciated mostly due to valuation effects.

Recently, Finance Minister Nirmala Sitharaman said that the rupee has not weakened, but it is the dollar that has strengthened, as she defended the 8 per cent fall in the value of the Indian currency against the greenback this year.

The rupee on Wednesday fell below the 83-level against the US dollar for the first time on foreign fund outflows.

Responding to a question related to the fear of recession across the world, Goyal said that the global slowdown will have a negative impact on India.

“But India has a large domestic market. Its size, diversity, policy space and financial sector strength will continue to give it decent positive growth,” he said.

Goyal pointed out that corporates have reduced debt over the past decade and the financial sector is well capitalised. “All of this reduces the infectious risk for India,” she said.

IMF chief Kristalina Georgieva recently said that the global economy is moving towards a world of relative uncertainty more than predicted.

The World Bank on October 6 projected a growth rate of 6.5 per cent for the Indian economy for 2022-23, a drop of one percentage point from the June 2022 projections, citing the deteriorating international environment, while the IMF has projected a growth rate of 6.8 per cent. growth rate is projected. 2022 for India compared to 8.7 percent in 2021.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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