Real interest rates above 2% may not be sustainable from growth perspective: Shashanka Bhide
Durable, high GDP growth requires inflation to be under control but real interest rates above 2% may not be sustainable when it comes to supporting the growth needs of the Indian economy, said Shashanka Bhide, member of the Monetary Policy Committee of the Reserve Bank of India. If one goes by the MPC's projection of 4.5% average inflation in FY25, the prevailing policy repo rate of 6.5% translates into a real interest rate of 2%. Edited excerpts of an interview with ET:
In your view, what is an appropriate level of real interest rate that pushes inflation back to target while ensuring that growth is supported?
With the policy rate as the instrument, there is a trade-off in terms of growth while bringing down the inflation rate to the target. However, a moderate inflation rate is also needed to achieve sustained high growth. While real interest rates above 2% may not be sustainable from a growth perspective, the persistence of inflation above the target is also unacceptable in the present framework.
In the latest MPC minutes, you have stressed upon the need for revival of growth in consumption demand. From a policymaking perspective, how can conducive conditions be created for improved employment and household income?
There are clearly signs of strong investment demand including construction activity, reflecting a conducive environment for new investment. Sustaining this environment would be a key to achieving the multiplier effects of new employment and income. Moderating inflation rate is also needed to spur
