RBI chief expects interest rates to stay high

New Delhi, Oct 20 RBI Governor Shaktikanta Das on Friday said the central bank faces the challenge of keeping a delicate balance between promoting growth and controlling inflation, with the potential for conflicts between the two objectives.

Das said the RBI has maintained a pause on key policy rates in 2023 so far and that the 200 basis point hikes are still working through the system.

Addressing the Kautilya Economic Conclave 2023, Das said, "I think interest rates will remain high. How long they will remain high, only the evolving world situation can tell."

He said the RBI was keeping a close watch on inflation. "We remain extra vigilant on inflation dynamics as the outlook on food inflation is beset with uncertainties," he added.

Das said that though macro stress tests reveal India's scheduled commercial banks will be able to comply with regulatory cap levels even under serious scenarios. However, he emphasised the importance of identifying vulnerabilities during good times to prevent future crises. "NBFCs (non-banking financial companies) must remain vigilant,” he said.

He also said that the financial markets have become highly sensitive to even the "slightest piece of information". The reaction of financial markets to policy changes and economic data has become a crucial aspect of policy-making.

Das said that as a consequence of this the central banks, including the RBI, have a larger responsibility to maintain financial stability.

The RBI Governor flagged global headwinds, including a slowdown in global growth and stubborn inflation that had emerged as a challenge. However, despite these challenges, the Indian economy has exhibited remarkable resilience, he added.

He mentioned that macro stress tests indicate that Scheduled Commercial Banks (SCBs) are expected to comply with regulatory capital levels even under severe economic scenarios.