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India’s inflation remains above the central bank’s target and it’s premature to discuss interest rate cuts yet, Governor Shaktikanta Das said.
Inflation figures for June, due to be published Friday, will likely be close to 5%, exceeding the Reserve Bank of India’s target of 4%, Das said in an interview to CNBC-TV18 channel on Thursday.
“It is too early to talk about interest rate cuts and I would rather not give any kind of forward guidance which would lead the market players and stakeholders to board the wrong train,” he said. Inflation is moving “very slowly” toward our target aim, he said.
The RBI has kept its policy rate unchanged at 6.5% for more than a year now although economists are betting the central bank is getting close to pivoting as inflation moderates and the Federal Reserve prepares to ease. Two of the RBI’s six members on the monetary policy committee voted last month to cut interest rates, arguing that too tight policy may impede economic growth.
“When we move toward 4% CPI on a sustained basis is when we will get the confidence to think about a change in stance,” he said.
The governor said growth in the first quarter of the fiscal year that began in March was strong and the central bank’s full-year projection of 7.2% looks “achievable.” Urban demand is stable and rural demand is picking up, Das said. He expects more growth upgrades for India in the coming months.
The central bank chief reiterated that he is not worried about the deluge of capital inflows after the nation’s bonds were included in the JPMorgan Chase & Co. emerging market index. The RBI has “multiple instruments” to deal with it, Das said.
Overseas investors have already poured more than $11 billion in fully accessible route bonds since the announcement of India’s index entry in September. The country is starting out with a 1% weightage on the gauge, which will be gradually raised to 10% by March.
On the issue of a possible extension in his tenure, Das declined to say whether he’s had any discussion with the government about staying on in his position after his current term ends in December. He said his focus is on the “job at hand.”
--With assistance from Shruti Srivastava.
(Updates with more comments from the governor.)
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