RBI governor signals no policy change despite inflation dip

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Subscribe to enjoy similar stories. (Bloomberg) -- India’s central bank governor signaled he’s in no hurry to cut interest rates despite recent softening in inflation in the world’s fastest-growing major economy.

“Inflation has been brought within the target band of 2-6%, but our target is 4%," Governor Shaktikanta Das said on Friday at a forum organized by The Bretton Woods Committee in Singapore. “And over the last several monetary policy meetings, we have been reiterating the importance to stay the course and not get carried away by some dips in inflation." Official figures Thursday showed inflation remained below 4% for a second month in August, although that was largely due to statistical reasons.

The Reserve Bank of India has kept interest rates unchanged for more than 18 months already, with Das previously warning against any premature cut given worries over food costs. Most economists don’t expect the RBI to ease borrowing costs until the final quarter of this year, predicting it will likely move only after the Federal Reserve pivots.

However, some say there are signs that urban consumer demand is faltering and rates should be lowered to support economic growth. “With growth momentum intact and inflation expected to pick up from here on above the 4% target, now that the statistical base effect driven sharp dip is behind us, policy focus will remain on price stability to keep inflation expectations anchored," said Gaurav Kapur, chief economist at IndusInd Bank Ltd.

Das said Friday that India’s potential growth rate was above 7.5%, “but taking a more conservative position, I would like to say that it’s around 7%." India should be able to maintain that pace of growth in the next few years, he added. Last quarter’s