The Reserve Bank of India acted proactively to deal with the shock of the Covid pandemic, Ukraine-Russia War, and took calibrated steps to ensure that the shock was absorbed without destabilising growth, said governor Shaktikanta Das at FE Modern BFSI summit. During the pandemic, the RBI MPC consciously decided to tolerate an inflation which was higher than 4%, up to 6% because the situation required that. “Had we started raising the rates before, what would it have done to the growth in 2021-22? Would it have prevented inflation from spiking? No,” Das said. “We waited for economic growth to reach a stage where it was safe to pull out liquidity,” he said.
Responding to a question whether RBI would now raise the interest rate to pre-pandemic level of 5.1%, Shaktikanta Das said that RBI is in sync with the needs of the economy. He mentioned that during the onslaught of the pandemic when the first nation-wide lockdown was announced, RBI’s focus was to boost growth, ensure that financial markets function as-usual. During that time, even when inflation went past the 6% mark, RBI looked past that as it considered the inflation spike transitory at that point. However, just recently it started considering the inflation persistent and so it went for liquidity withdrawal. Now that growth, economic activities have returned to pre-pandemic levels, inflation has become the priority.
Addressing the concerns regarding liquidity injections by RBI, Das emphasised that all the liquidity injections announced by the RBI came with a sunset provision of an end date to ensure that none of the measures remained open-ended. However, dealing with the liquidity that came into the system due to multiple covid waves, the onset of war in Europe was a challenge and VRRR, SDF managed to do that. Das assured that of the 12 lakh crore injected by the RBI during the pandemic, 5 to 5.5 lakh crore has already come back, while the remaining 7 lakh crore is still sitting out there. “We are confident that we will come out of it swiftly and will have a smooth landing,” he said.
When asked about whether RBI is considering borrower-centric regulations, Das stated that in case of NBFCs, the regulator has already introduced scale-based regulation. Also, in the case of MFIs, they recently introduced activity-based regulations which are neutral across entities. For a microfinance loan, the regulations are now uniform. So, the lender has already moved in a direction where the regulations will benefit microfinance borrowers. RBI is going to finetune its regulations to address all the challenges and concerns of the customers, said RBI guv.