RBI reserves the right to chose its timing to normalise the monetary policy: Dy Guv Patra

The Reserve Bank of India reserves the right to chose its timing to normalise the monetary policy, Deputy Governor Michael Patra said even as he emphasised that the perception that the central bank is behind the curve is unfair.

“I think the perception (that India has fallen behind the curve by retaining an accommodative monetary policy when other economies are either tightening monetary policy or announcing normalisation) is unfair because every judgment must be based on facts.

“So, if you look at the facts, remember, India had the deepest recession in the world….So, we have dug out of the deepest recession in the world,” Patra said at the Asia Economic Dialogue 2022.

On GDP growth

Referring to the FY2022 GDP growth estimate of 9.2 per cent, the Deputy Governor noted that most people don’t focus on the fact that at this rate of growth, India is only one per cent above pre-pandemic levels of GDP.

“We were actually slowing even before the pandemic in a cyclical downturn, which started in 2017.

“If you extend that slowing line into a trend and place the actual GDP against it, we have lost at least 10-15 per cent of our output forever. We will never gain it back. So, that is where India stands in terms of the growth rate,” per Patra’s assessment.

The Deputy Governor underscored that inflation is a case of statistical effects in India.

“If you look at the (inflation) momentum, it is actually declining. So, India is in a comfortable position as far as inflation is concerned.

“And since that is there, we have the headroom to support growth and we will do so because we are dealing with lost output, lost livelihood…So, I think, it is an unfair judgment (that RBI is behind the curve). But RBI reserves the right chose its timing to normalise,” Patra said.

He noted that monetary policy is a very blunt instrument and not a fine-tuning instrument designed to address issues of inequality.

Digital currency

Patra said India will proceed in a calibrated manner vis-a-vis Central Bank Digital Currency (CBDC), which will be issued during 2022-23.

“…..In India, we have CBDC in some form at the wholesale level…It is the retail CBDC which is the issue.

“And I think, we will proceed very gradually. We will cross the river by feeling the pebbles,” he said.

He observed that there are issues relating to privacy, monetary policy transmission, and energy intensity need to be taken into account before introducing CBDC.

“So, at this time, we are proceeding very, very slowly. We will measure our steps and move in this direction in very calibrated manner,” Patra said.

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