​​India better placed now than in 2013 to face taper tantrum: RBI Governor

​​India better placed now than in 2013 to face taper tantrum: RBI Governor


India is much better prepared to face a taper tantrum kind of situation than what it was back in 2013, Reserve Bank of India (RBI) governor Shakitikanta Das said on Wednesday at the finale of Business Standard BFSI Summit.

India’s growth prospects remain strong despite several headwinds, and the will play a supportive role to the government to bring growth back, governor Das said.

is confident of its 9.5 per cent growth projection for the Indian economy in this financial year, even as the global economy may still struggle, said the governor. He was chatting with Business Standard’s consulting editor Tamal Bandyopadhyay at the RBI headquarters.

“The growth impulses have become stronger. The fast-moving indicators have become very positive, and our 9.5 per cent gross domestic product (GDP) growth projection that we gave in the monetary policy … we are on our path to achieve that,” governor Das said, notwithstanding “certain global headwinds” in the external sector.

Das said the recent tax cuts on fuel prices are “significantly positive for inflation” and food inflation now looks to be under control, even as the government moved to address the supply-side factors.

However, core inflation (inflation excluding food and fuel) has remained elevated and the RBI is “keeping a close watch” on the core and fuel inflation in India.

Nevertheless, the RBI governor expects its projection of 5.3 per cent on inflation for the year will be met, while the central bank remained “very careful” in a “fast-developing scenario.”

The central bank is rebalancing the liquidity available in the system, and whatever measures the central bank had taken, which seemed to have worked well, had a sunset clause attached to them. Most of the original Rs 1 trillion long term repo operation (LTRO) money has come back to the RBI, he said.

“The concept of unwinding is misunderstood concept. We have always built-in provisions that measures are given for a finite period and that they automatically rebalance to their original situation.”

However, the inflow of foreign funds, which the RBI had to mop up, added more liquidity in the mix.

Reflecting the liquidity surplus, the overnight and short term rates have fallen significantly and are hovering at around the reverse repo rate of 3.35 per cent.

Interesting, the RBI governor said that the RBI is now letting the market determine the yields on the bond market, especially for the short term rates.

“We are not doing active interest rate determination that we sought to do last year,” governor Das said, adding this has brought a lot of discipline in the market.

“Evolution in the interest rate seemed to be quite orderly. The market has accepted the reality. Perhaps now there is a greater synergy in thinking between the RBI intention and market realities,” governor Das said.

India’s record forex reserve also gives a lot of confidence and security to the foreign exchange market, he said.

“Today we are in a much more comfortable position. we will not see the kind of challenges that India observed during 2013,” governor Das, who recently received a three-year extension, said.

He also turned down any suggestion that the RBI will need capital from the government to maintain its minimum economic capital.

Abundant liquidity and soft rates have ensured that housing loans have seen a boom, but each bank must be careful that their risk assessment capability points out if there is unduly growth of retail loans, the RBI governor cautioned.

Credit demand from the corporate sector is expected to pick up from next year onwards, the governor said as these firms are accessing more bond markets given the softer rates there.

The RBI governor also allayed fear that the RBI doesn’t have enough skills to handle fintech and big techs in the field of banking.

“We have set up a department of fintech in the department of regulation, we have enough capability, we keep on evaluating our staff and augment our staff skills,” the governor said.

However, the digital world is “constantly throwing up new issues and challenges for the regulator.”

The RBI is studying the model of certain big tech firms collecting deposits on behalf, he said. It is studying agreements between fintech and small banks, and “whether there is a possibility that the integrity of the financial sector is undermined.” If required, the RBI will issue additional regulatory guidelines in these regards.

But fintechs are not threats, but a challenge, and must be taken as an opportunity by banks. The banks need to be tech-savvy, upgrade their technology, and should be in sync with technological changes.”

The central bank has serious concerns around cryptocurrencies and feels these private virtual currencies can undermine macroeconomic and financial stability. The RBI has given a detailed presentation to the government in this regard, which is getting worked upon, he said.

The governor also expressed his doubts if the number of users and amount being bandied around by the crypto platforms are true.

“I am not so sure about the numbers being quoted by crypto platforms. With a reasonable amount of confidence I can say the number of investors in the crypto market seems to be exaggerated,” the governor said, adding most of the buyers of cryptos in those platforms have anyway invested just between Rs 1,000 to Rs 3,000.

“The overall outlook for India is quite positive. The initiatives are taken by the government with regard to PLI schemes, infrastructure spending, privatization of AirIndia, resolution of the crisis in the telecom sector augur well for the India growth story,” governor Das said, adding:

“RBI plays a supporting role in the growth story; the government has to be at the forefront.”


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *